solving basic account difficulties

Hi Sonujai
I am Pavan,
Ur query is very simple
THERE IS NO DIFFERENCE BETWEEN "PROVISION" AND " RESERVE"
U usually find in many a questions say
# provide for doubtfull debts of Rs.2000
this itself means make a provision for doubtfull debts or make a reserve for doubtfull debt

Hi Sonujai
I trust the term provision is what that you are providing from the current accounting period for Doubtful debts whereas Reserve is what that is standing in the Balance sheet which is the accumulation of the provisions.
This is navin from navinkumar @ ntpc.co.in

Navin

The One Says:

I would normally not post on this section.  (not being a student)

But, here I must interlude since the aforementioned posts are grossly incorrect.

There is a clear distinction between provision and reserve the former is an above the line item and the later is below the line (ie P&L and P&L App.). Provisions are specific in nature; reserves are usually more general. (Refer Part III Schedule VI). Also usually provisions are for short term ad hoc or contingencies; while reserves are created based on certain statutory requirement or based on strategic capital finance approach and are for longer durations.

For bad debts the correct term is "Provision for Bad Debts" though reserve might be used at times.

Again this is a Students discussion but I thought it would be useful if I provide this information.

Hope it helps.

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Your query is very simple; literally speaking there is no difference between them but
there is a difference between them in Accounting terminology and usage
RESERVE  IS MADE OUT OF THE PROFITS;THEY ARE ALSO CALLED AS BELOW THE LINE ITEMS SINCE THEY ARE SET ASIDE AFTER ARRIVING TO PROFITS
Where as
PROVISIONS ARE MADE IN ORDER TO MEET THE CONTINGENT LOSSES AND THEY ARE MADE BEFORE PROFIT CALCULATION;AND WE OFTEN CALL THEM AS ABOVE THE LINE ITEMS

The word "Above the line" &"Below the line" indicates the PROFIT

Excellent reply The One. Thanks.

i cant believe - how the second answerer -a CA -has even passed ???????????he doesnt know -such a basic thing............

          he doesnt even know -the difference between -reserve and a provision .........

A "provision" -(as confirmed by the Sch 6 to Co Act and also -as per -AS 29 - is a known liability ....which u have to provide -to show the true and fair view -i.e as a liability or a "charge" to the profits........else the auditor will qualify .........

     but a "reserve" is a purely a discretionary set aside amount -which is not required to be provided -to have a true and fait view -also the auditor willnt qualify -if that is not provided...........

yes..there is a difference between provision and reserve but there is no difference between pro and res for doubtful debts. both of then are created above the line...so no cofosion.

one thing you must note is that accounting is not a pure science. so no rule works like h2o.
hope u will understand it.

bye
siddharth

Dear ONE, YOU HAVE EXPLAINED BEAUTIFULLY....WE NEED YOUR CONCEPTUAL SOUNDNESS AND CLARITY......SO ALWAYS PLEASE COME TO THIS SECTION......THANKS A LOT SIR..

THANKS TO ALL

THANKS TO ALL

I have a doubt.

When we consider bad debts, can't both provisions and reserves the same.

The statuory reserve only comes into play in the case of revaluation etc? Am I wrong? Please correct me if I am.