Differentiate between Reserve and Provision.
AccountancyClass 11CBSEAnswered 23 Jun 2026
Answer
| Basis | Provision | Reserve |
| Basic Nature | A provision is a charge against profit. It is deducted from gross profit | Reserve is an appropriation of profit. It is created after net profit |
| Purpose | It is made to for known liabilities or expenses pertaining to current accounting period. | It is created for strengthening the financial position of the business |
| Presentation in balance sheet | It is shown either i) By deduction from the item on the assets side for which it is created. ii) On the liability side along with current liabilities | It is shown on the liability side after capital |
| Effect on taxable profits | It is deducted before calculating taxable profits. | It is created after tax. |
| Element of compulsion | It is necessary to ascertain true and fair P&L | It is at the discretion of the management. |
| Use for the payment of dividend | It cannot be used for dividend distribution | It can be used for dividend distribution |
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