What is difference between provisions and reserve.

Question

Accepted Answer

Provisions are liabilities that are uncertain in timing or amount, while reserves are profits set aside for specific purposes.

Provisions are recognized when there is a present obligation and it is probable that an outflow of resources will be required to settle the obligation.
Provisions are measured at the best estimate of the amount required to settle the obligation.
Examples of provisions include warranty provisions, legal provisions, and restructuring provisions.
Reserves, on the other hand, are profits that are retained by a company for specific purposes.
Reserves can be used to fund future investments, pay dividends, or cover contingencies.
Examples of reserves include general reserves, dividend reserves, and contingency reserves.

Accepted Answer

Reserves are made to strengthen the financial position of a business and meet unknown liabilities or losses.

Provisions are made to meet specific liability or contingency e.g. Provision for Doubtful debts.

Accepted Answer

Provisions are made for specific purposes while reserves are made for expected future liability and losses.

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