Difference between provision and reserve

Question

Accepted Answer

Provision is a liability that is uncertain in timing or amount, while reserve is a portion of profits set aside for a specific purpose.

Provision is an estimated expense that a company sets aside in its accounts to cover a potential future liability.
Reserve is a portion of profits that a company sets aside for a specific purpose, such as to fund future expansion or to pay dividends.
Provision is recognized as an expense on the income statement, while reserve is shown as a separate line item on the balance sheet.
Examples of provisions include warranty provisions, bad debt provisions, and restructuring provisions.
Examples of reserves include capital reserves, dividend reserves, and contingency reserves.

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