Answer / vsharma

Provisions generally done against the expenses whereas
reserve is related to surplus of funds with in organisation.

Answer / vivek

Provision is a charge against incomes whereas reserves is an appropriation of profits.
provision is to be created even when there is no profit whereas reserves can be created only out of profits.

Answer / subhash a.

Absolutely right my dear friend,

We need to explain the situation to the readers clearly that
when these both are created.

A provision is created when there is an approximately known
reduction (or loss) in value of assets, so that we can
report our assets in balance sheet truly.
(e.g. for reduction in value of assets - prov for
depreciation; the rates are specified in comapanies' act &
it act;
for loss in value of assets - prov for bad debts; management
will decide over the matter)

A reserve is created when we decided to appropriate our
earned profits for some specific purpose. Otherwise they
will remain in general reserve a/c.

Good luck friends.

Answer / loknath behera

Provisions :-

1.Created by debiting P/L account .
2.Created to meet the known liability or a specific contingency
3.Not available for dividends .
4.It is shown in the asset side of balance sheet .

Reserves :-

1. It is created by debiting P/L Appropriation account .
2. Created to meet unknown liabilities .
3. Created when there is profit in business .
4.It can be distributed among shareholders and dividend .
5.Liability side of balance sheet .

I renders interior Services, consider one project cost Rs.500000/- Scenario 1 - Material purchased on my Firm Name Material - 300000 -300000 On party behalf Labour - 200000 -150000 My expenses for Labour Contracts Profit - 50000 My Profit Scenario 2 - Material purchased by client Labour - 200000 -150000 My expenses for Labour Contracts Profit - 50000 My Profit In both Profit is same Rs. 50000/-. which is beneficial for me in terms of turnover or tax matters. and if I have to raise a bill to party as per both scenario, how it will affect bill and tax, where will I suffer loss?

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