Question { Accenture, 54370 }

What is provision and reserve and how u treat in account

Answer

Provision is an amount set aside out of profits in the
accounts of an organization for a known liability(even
though the specific amount might not be known) or for the
diminution in value of an asset


Reserves are subdivided into Retained
earnings(revenue reserves), which are available to be
distributed to the shareholders by way of dividends, and
capital reserves, which for various reasons are not
distributable as dividends, although they may be converted
into permanent share capital by way of a bonus issue.