| Points | General Reserve | Provision |
| 1. Meaning | General reserve is a reserve created for general purposes. | Provision is the sum set aside for specific purposes. |
| 2. Objective | A general reserve is created to improve the financial position of the business. | Provision is created for specific purposes like depreciation, bad debts, renovation, taxation, etc. |
| 3. Profit or Loss | It can be created only in the year in which profit is earned. | Provision is to be made even if losses are incurred. |
| 4. From which account? | General reserve is created by debiting Profit and Loss Appropriation account. | Provision is created by debiting Profit and Loss Account. |
| 5. Appropriation of amount | Amount to be transferred to reserve depends upon the provision of law, amount of profits and wills and wishes of the directors. | The amount to be transferred to provision is certain. |
| 6. Use | The amount of general reserve is used to give bonus shares, to declare dividends or to write off losses. | Provision is used for the purpose for which it is created. |
| 7. Investment | Amount of general reserve can be invested in the business or outside the business. | Amount of provision cannot be invested in the business or outside the business. |
| 8. In the Balance Sheet | General reserve is shown under the heading ‘Reserves and Surplus’ in the Balance Sheet on Capital – Liabilities side. | Amount of provision is deducted from the concerned asset in the Balance Sheet or will be shown under the heading ‘Provisions’ on the Capital-Liabilities side. |
| 9. Voluntary or Mandatory | Creation of general reserve is voluntary. | Creation of provision is mandatory or compulsory. |
| 10. Dividend | General reserve can be used for distribution of dividend. | Provision cannot be used for the distribution of dividend. |
