Provision vs. Reserve — What's the Difference?
By Maham Liaqat & Fiza Rafique — Updated on May 15, 2024
Provision refers to setting aside funds for anticipated liabilities, while reserve represents funds allocated for future uncertainties or specific purposes in a company's financial statements.
Difference Between Provision and Reserve
Table of Contents
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Key Differences
Provision refers to an amount set aside from a company's profits to cover future liabilities that are likely to arise, such as taxes, repairs, or bad debts. These are often anticipated expenses that can be reasonably estimated. On the other hand, reserve is a portion of a company's profits set aside for future needs or contingencies. These can include funds for expansion, unforeseen expenditures, or maintaining financial stability.
Provision impacts a company's financial statements by reducing its profit for the period, reflecting the expected outflow of resources to settle liabilities. In contrast, a reserve does not immediately impact the profit and loss statement but is shown in the equity section of the balance sheet, demonstrating retained earnings allocated for specific purposes.
Provisions are mandatory and dictated by accounting standards to ensure that financial statements present a true and fair view of the company's liabilities. Reserves, however, are discretionary and are often created at the management's decision to prepare for future opportunities or challenges.
While provisions are often related to specific, identified risks or obligations, reserves are more general and can be used for a variety of purposes, such as investment, dividend distribution, or cushioning against economic downturns.
Provisions are usually utilized within a short period, addressing foreseeable obligations, whereas reserves may remain unused for extended periods, providing a buffer for long-term stability and growth.
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Comparison Chart
Definition
Funds set aside for anticipated liabilities
Funds allocated for future uncertainties
Impact on Profits
Reduces profit for the period
Does not immediately impact profit
Financial Statement
Reflected in profit and loss statement
Shown in the equity section of the balance sheet
Nature
Mandatory as per accounting standards
Discretionary, based on management's decision
Usage Period
Typically short-term
Often long-term, depending on future needs
Compare with Definitions
Provision
An amount set aside for future liabilities.
The company made a provision for potential legal expenses.
Reserve
Retained earnings set aside for future use.
The firm built a reserve for future expansion.
Provision
Financial preparation for expected costs.
Provisions for repairs were included in the annual budget.
Reserve
Funds allocated for unforeseen expenditures.
The emergency reserve was used during the crisis.
Provision
Accounting for known liabilities.
A provision was made for income tax payable.
Reserve
Retained earnings for stability.
The company maintains a reserve to ensure financial stability.
Provision
Allocation of funds for anticipated expenses.
They included a provision for bad debts in their accounts.
Reserve
To keep back, as for future use or for a special purpose
The hospital reserves certain drugs for the most serious cases.
Provision
The act of providing or supplying something
The provision of health care.
The provision of rations.
Reserve
To set or cause to be set apart for a particular person or use
Reserved a seat on the next flight out.
Provision
The act of making preparations for a possible or future event or situation
The provision for retirement requires planning.
Reserve
Something kept back or saved for future use or a special purpose
A runner with a reserve of energy for the final lap.
Provision
Something provided
A fire escape is an important provision in a building.
Reserve
An amount of capital that is not invested or otherwise used in order to meet probable demands, such as withdrawals by bank depositors or claims on insurance policies.
Provision
Provisions Necessary supplies, such as food and clothing, as for a journey.
Reserve
Lack of enthusiasm, as from a misgiving or doubt
Supported the idea without reserve.
Provision
A preparatory action or measure
We must make provisions for riding out the storm.
Reserve
Self-restraint in expression or bearing; reticence or coolness
Maintained a dignified reserve throughout the ceremony.
Provision
A particular requirement in a law, rule, agreement, or document
The constitutional provision concerned with due process.
Reserve
A reservation of public land
A forest reserve.
Provision
To supply with provisions.
Reserve
An amount of a mineral, fossil fuel, or other resource known to exist in a particular location and to be exploitable
The discovery of large oil reserves.
Provision
To take preparatory action or measures
A bank must provision against losses from bad loans.
Reserve
A fighting force kept uncommitted until strategic need arises.
Provision
An item of goods or supplies, especially food, obtained for future use.
Reserve
The part of a country's armed forces not on active duty but subject to call in an emergency.
Provision
The act of providing, or making previous preparation.
Reserve
A member of either of these forces
The army's active reserves.
Provision
Money set aside for a future event.
Reserve
A group of players that play only as substitutes for starters in games or are kept from playing for some reason.
Provision
(accounting) A liability or contra account to recognise likely future adverse events associated with current transactions.
We increased our provision for bad debts on credit sales going into the recession.
Reserve
One of these players.
Provision
(law) A clause in a legal instrument, a law, etc., providing for a particular matter; stipulation; proviso.
An arrest shall be made in accordance with the provisions of this Act.
Reserve
Held in or forming a reserve
A reserve supply of food.
Provision
(Roman Catholicism) Regular induction into a benefice, comprehending nomination, collation, and installation.
Reserve
(behaviour) Restriction.
Provision
A nomination by the pope to a benefice before it became vacant, depriving the patron of his right of presentation.
Reserve
The act of reserving or keeping back; reservation; exception.
The book is on reserve.
Provision
(transitive) To supply with provisions.
To provision an army
Reserve
Restraint of freedom in words or actions; backwardness; caution in personal behavior.
Provision
To supply (a user) with an account, resources, etc. so that they can use a system.
Reserve
That which is reserved or kept back, as for future use.
Provision
The act of providing, or making previous preparation.
Reserve
A natural resource known to exist but not currently exploited.
New oil reserves are continuously being discovered, but not as fast as the existing ones are running out.
Provision
That which is provided or prepared; that which is brought together or arranged in advance; measures taken beforehand; preparation.
Making provision for the relief of strangers.
Reserve
A tract of land reserved, or set apart, for a particular purpose
The Connecticut Reserve in Ohio was originally set apart for the school fund of Connecticut.
The Clergy Reserves in Canada are for the support of the clergy.
Provision
Especially, a stock of food; any kind of eatables collected or stored; - often in the plural.
And of provisions laid in large,For man and beast.
Reserve
(Canada) A tract of land set apart for the use of an Aboriginal group; Indian reserve (compare US reservation.)
Provision
That which is stipulated in advance; a condition; a previous agreement; a proviso; as, the provisions of a contract; the statute has many provisions.
Reserve
(military) A body of troops kept in the rear of an army drawn up for battle, reserved to support the other lines as occasion may require; a force or body of troops kept for an exigency.
Provision
A canonical term for regular induction into a benefice, comprehending nomination, collation, and installation.
Reserve
Funds kept on hand to meet planned or unplanned financial requirements.
Provision
A nomination by the pope to a benefice before it became vacant, depriving the patron of his right of presentation.
Reserve
A reserve price in an auction.
Provision
To supply with food; to victual; as, to provision a garrison.
They were provisioned for a journey.
Reserve
Wine held back and aged before being sold.
Provision
A stipulated condition;
He accepted subject to one provision
Reserve
(ceramics) Absence of color or decoration; the state of being left plain.
Provision
The activity of supplying or providing something
Reserve
(social) Something initially kept back for later use in a recreation.
Provision
The cognitive process of thinking about what you will do in the event of something happening;
His planning for retirement was hindered by several uncertainties
Reserve
(sports) A member of a team who does not participate from the start of the game, but can be used to replace tired or injured team-mates.
Provision
A store or supply of something (especially of food or clothing or arms)
Reserve
(card games) A group or pile of cards dealt out at the beginning of a patience or solitaire game to be used during play.
Provision
Supply with provisions
Reserve
In exhibitions, a distinction indicating that the recipient will get a prize in the event of another person being disqualified.
Provision
Setting aside resources for specific purposes.
The budget includes provisions for maintenance and upgrades.
Reserve
(calico printing) A resist.
Reserve
A preparation used on an object being electroplated to fix the limits of the deposit.
Reserve
To keep back; to retain.
We reserve the right to make modifications.
Reserve
To keep in store for future or special use.
This cake is reserved for the guests!
Reserve
To book in advance; to make a reservation.
I reserved a table for us at the best restaurant in town.
Reserve
(obsolete) To make an exception of; to except.
Reserve
To keep back; to retain; not to deliver, make over, or disclose.
Reserve
Hence, to keep in store for future or special use; to withhold from present use for another purpose or time; to keep; to retain; to make a reservation{7}.
Hast thou seen the treasures of the hail, which I have reserved against the time of trouble?
Reserve your kind looks and language for private hours.
Reserve
To make an exception of; to except.
Reserve
The act of reserving, or keeping back; reservation.
However any one may concur in the general scheme, it is still with certain reserves and deviations.
Reserve
That which is reserved, or kept back, as for future use.
The virgins, besides the oil in their lamps, carried likewise a reserve in some other vessel for a continual supply.
Reserve
That which is excepted; exception.
Each has some darling lust, which pleads for a reserve.
Reserve
Restraint of freedom in words or actions; backwardness; caution in personal behavior.
My soul, surprised, and from her sex disjoined,Left all reserve, and all the sex, behind.
The clergyman's shy and sensitive reserve had balked this scheme.
Reserve
A tract of land reserved, or set apart, for a particular purpose; as, the Connecticut Reserve in Ohio, originally set apart for the school fund of Connecticut; the Clergy Reserves in Canada, for the support of the clergy.
Reserve
A body of troops in the rear of an army drawn up for battle, reserved to support the other lines as occasion may require; a force or body of troops kept for an exigency.
Reserve
Funds kept on hand to meet liabilities.
Reserve
That part of the assets of a bank or other financial institution specially kept in cash in a more or less liquid form as a reasonable provision for meeting all demands which may be made upon it;
Reserve
In exhibitions, a distinction which indicates that the recipient will get a prize if another should be disqualified.
Reserve
A resist.
Reserve
A preparation used on an object being electroplated to fix the limits of the deposit.
Reserve
Formality and propriety of manner
Reserve
Something kept back or saved for future use or a special purpose
Reserve
An athlete who plays only when another member of the team drops out
Reserve
(medicine) potential capacity to respond in order to maintain vital functions
Reserve
A district that is reserved for particular purpose
Reserve
Armed forces that are not on active duty but can be called in an emergency
Reserve
The trait of being uncommunicative; not volunteering anything more than necessary
Reserve
Hold back or set aside, especially for future use or contingency;
They held back their applause in anticipation
Reserve
Give or assign a share of money or time to a particular person or cause;
I will earmark this money for your research
Reserve
Obtain or arrange (for oneself) in advance;
We managed to reserve a table at Maxim's
Reserve
Arrange for and reserve (something for someone else) in advance;
Reserve me a seat on a flight
The agent booked tickets to the show for the whole family
Please hold a table at Maxim's
Reserve
Not engaged in military action
Reserve
Kept in reserve especially for emergency use;
A reserve supply of food
A spare tire
Spare parts
Reserve
Financial buffer for future needs.
The reserve fund helped the company during the downturn.
Reserve
Allocation of profits for specific purposes.
A portion of profits was moved to the reserve for dividends.
Common Curiosities
What is a reserve?
A reserve is a portion of retained earnings set aside for future needs, uncertainties, or specific purposes.
How does a provision affect financial statements?
Provisions reduce the profit for the period as they are considered an anticipated expense.
How does a reserve appear in financial statements?
Reserves are shown in the equity section of the balance sheet and do not immediately affect profit.
Are provisions mandatory?
Yes, provisions are mandatory and dictated by accounting standards to ensure accurate financial reporting.
Can reserves be used for any purpose?
Yes, reserves can be used for various purposes, such as investment, expansion, or financial stability.
What is a provision?
A provision is an amount set aside from profits to cover future anticipated liabilities or expenses.
Can provisions be used for any purpose?
No, provisions are typically set aside for specific anticipated liabilities or expenses.
Do reserves impact a company's cash flow?
Reserves do not directly impact cash flow until the funds are utilized for their intended purpose.
Do provisions impact a company's cash flow?
Provisions can impact cash flow when the anticipated liability is settled.
Are reserves short-term or long-term?
Reserves are often long-term, providing a buffer for future stability and growth.
Are reserves mandatory?
No, reserves are discretionary and are often created based on management's decisions.
Are provisions short-term or long-term?
Provisions are usually short-term, addressing foreseeable obligations within a year.
Why are provisions important?
Provisions ensure that financial statements reflect true and fair liabilities, preparing the company for expected expenses.
Why are reserves important?
Reserves provide financial stability, ensuring the company can handle future uncertainties and invest in opportunities.
How are provisions calculated?
Provisions are calculated based on reasonable estimates of future liabilities or expenses.
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Maham Liaqat
Co-written by
Fiza RafiqueFiza Rafique is a skilled content writer at AskDifference.com, where she meticulously refines and enhances written pieces. Drawing from her vast editorial expertise, Fiza ensures clarity, accuracy, and precision in every article. Passionate about language, she continually seeks to elevate the quality of content for readers worldwide.
