Differentiate between provision and reserves

1.	Differentiate between provision and reserves
Answer» It\'s not a easy language<br>\tReserveProvisionDefinitionThe portion of profit kept aside for unforeseen obligations of a businessA portion of money from the business set aside for meeting known liabilities or expensesMethod of CreationCreated by debiting Profit and Loss appropriation accountCreated by debiting Profit and Loss AccountPurposeIt provides capital for running the business and safeguards against expenses from unforeseen contingenciesIt secures business from expenses arising from known liabilitiesAllocationPresence of profit is required for allocation of reserve.Presence of profit not necessary for allocationDividend PaymentPaid from reservesCannot be paidImpact on ProfitReduces net profit of the organisationReduces profits for dividend distributionAppears inAlways shown on the liability sideAppears as a deduction from the concerned asset, in case of an asset, in case of liabilities, it is shown in the liabilities sideUtilisationCan be used for any given purposeNeeds to be used for the specific purpose it is allocated for\t

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