What is difference between Provisions and Reserves in a Balance sheet?



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my name is coulibaly and i would like to know the basic difference there is between PROVISIONS and RESERVES where do each of these comes from and their purposes

1 Answer(s)


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Hi Coulibaly,

Reserves are created by taking money from the Net Income of a company. Reserves are created to prepare the company for any unexpected events in the next year. Sometimes reserves could also be paid our as dividends.

Provisions are also created by taking money from the Net Income of a company. However provisions are created to provide money for known events in the following year - maybe a lawsuit, or maybe a yearly employee special bonus.

So basically provisions are for unexpected outcomes and reserves are for expected outcomes.

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