Provisions and reserves are two common terms often discussed in business. These terms sound similar but are created for different reasons in a business organisation. Provision is a sum of money that has been kept away to meet anticipated financial obligations in future. Creation of provisions is mandatory as per law. Provisions are made irrespective of profits earned or losses incurred by a business. It cannot be used to distribute dividends as they are made for a specific liability. On the other hand, reserve is a sum of money set aside from the total earnings of a company to meet unforeseen future losses and liabilities. Reserves are made only when the business is profitable. They can be used to distribute dividends to shareholders. Have a look at the detailed given presentation.

Saranya R Kurup

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