Railway Accounts Department Examinations

Showing posts with label Reserves. Show all posts
Showing posts with label Reserves. Show all posts

Wednesday, August 15, 2018

Book keeping - Differences between Reserves & Provisions


Most Important question  - 4 times asked so far
1984, 1987, 1988, 1995
Differences between
Reserves
Provisions
1. Appropriation of Profits.  Means not mandatory.
1. Charged against Profits.  Means Mandatory.
2. Reserves are only made when the business is profitable.
2. Provisions are made irrespective of profits earned or losses incurred by a business.
3. Debiting P&L Appropriation A/c
3. Debiting P & L A/c
4. Shown on Liabilities side of Balance Sheet
4. Shown on Liabilities side of Balance Sheet or Deduct from the Asset concerned.
5. Dividends can be paid out of Reserves.
5. Dividends cannot be paid out of Provisions.
6. Made to strengthen the financial position of a Business and meet unknown liabilities
6. Made to meet known liabilities such as doubtful debts.
7. Examples: General Reserve, Capital Reserve etc
7. Examples: Provision for Doubtful Debts, Provision for Depreciation, Provision for Tax, etc.,