Provision And Reserves

In accounting sense, provision is an amount attributed towards a possible liability resulting in cash outflows for the firm whereas reserve is a an amount kept aside for a specific purpose (if no purpose then profits are transferred to general or capital reserves as the case maybe).

Reserves are created out of profits, whereas provisions are made as soon as a possibilty of liability is determined irrespective of profits or loss.

The choice to create / not to create reserve lies with the Management which is not the case with provisions.

Reserves are shown on liability side whereas provisions dont appear on balance sheet.

Nice Explanation.

 profit is not transferred to capital reserve..it can be transferred to capital a/c in case of prop ship or partnership businesses

good reply MR. Anirban......u have learnt at last..

thanks friends................................................................................................................................................

 Provisions are a charge on profits whereas reserves are a result of appropriation of profits. More often than not, the provisions are liabilities towards third parties but reserves are owner's equity, except in few cases like reserves created for redemption of debentures etc.

Further, under taxation laws deduction can generally be availed in respect of provisions that have been charged to current year's profit. Deduction in respect of amounts appropriated towards reserves cannot be availed except in few cases.

Thanks a Lot

yes i agree with krunal and shubankar