Question
Distinguish between : $(1)$ General Reserve and Provision :
| Points | General Reserve | Provision |
| $1.$ Meaning | The certain amount is kept aside from the profit of the unit for strengthening the economic position of the unit & for future growth of the business, such amount is called the General Reserve. | The amount, which is provided for the expected known liabilities or losses, is called Sepcial Reserve or Provision. |
| $2.$ Purpose | The purpose of creating general reserve is to increase financial soundness of the business or to meet with contingent expenses. | Provision is made for special purpose of meeting with known probable liability or losses. |
| $3.$ Accounting Effect | General reserve is created out of profit and loss appropiration account. | Provision is created out of profit and loss account. |
| $4.$ Existence of Profit | An amount is appropriated to general reserve only if there is profit at the end of an accounting year and it is voluntary. | Provision is made even if there is loss at the end of an accounting year. |
| $5.$ Distribution of amount | The amount, which deemed fixed by the management can be transferred to reserve and there is on fix rules for this. | The amount of this type of reserve is pre-determined or it can be calculated as perfect amount or percentage on the base of past experience records. |
| $6.$ Uses | General reserve can be used for any purpose | Provision can be used only for the purpose for which it is created. |
| $7.$ Investment | General reserve can be invested in the business or outside the business. | Provision can not be invested in the business or outside the business. |
| $8.$ Distribution of dividend | General reserve can be used for distribution of dividend. | Provision can not be used for the distribution of dividend. |
| $9.$ Necessity | There is no necessity of general reserve to determined the net profit of a unit. General reserve can be determined on the base of net profit. | There is necessity of provision to determined of net profit of a unit. |
| $10.$ The effect in balance sheet | General reserve is shown in Balance sheet on liabilities side under the heading of 'Reserve and Surplus'. | Provision is shown in balance sheet on liabilities side. Provision against and asset is shown by deducting from respective asset on assets side. |
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