Accounting




January 16, 2008

What is the difference between reserve and provision?

In the U.S. the use of the word reserve has been discouraged for several decades. In its place, the accounting profession has recommended the use of words such as allowance, accumulated, or provision. For instance, many years ago the contra account to a plant asset may have been titled Depreciation Reserve. To some readers, that name implied that cash had been set aside to replace the asset. To better communicate reality, the accounting profession recommended a more descriptive title such as Accumulated Depreciation. Similarly, the contra account to Accounts Receivable may have been titled Reserve for Bad Debts. Again, that title could imply that money was set aside. To avoid misinterpretation, the accounting profession suggested Allowance for Bad Debts or Provision for Bad Debts.

The word provision might appear in the title of a contra account as we just noted. In addition, provision will occasionally appear in the title of an expense account, such as Provision for Income Taxes.






Suggest a Question

Subscribe to Q&A



Comments

9 Responses to “What is the difference between reserve and provision?”

  1. accounting on January 16th, 2008 3:09 pm

    Protected: What is the difference between reserve …

    Bookmarked your post over at Blog Bookmarker.com!

  2. abdullahi on March 11th, 2008 6:22 am

    Thank You very much for your information

    it will be very nice if you could send me regularly

    thank you

  3. Anil Kumar Rampalli on March 19th, 2008 1:30 am

    Hi,

    I find this site very useful, Thanx for the information.

    regards
    Anil

  4. Winwill on April 9th, 2008 5:37 am

    I love this course and wish to learn more from the accounting coach. I am a student of the cuttington university in West Africa, Liberia, and studying accounting.

  5. benny on April 29th, 2008 3:00 am

    hi,
    thnks for info…

    GBU.

  6. majeed on May 27th, 2008 2:00 am

    This course is very informative. What about conducting an online exam so that we can test our awareness..?

  7. saurabh chadha on July 7th, 2008 5:06 am

    WHY WE DEDUCT PROVISION FOR DOUBTFUL DEBTS FROM DEBTOR IN BALANCE SHEET

  8. Sarfraz Khan on August 16th, 2008 2:36 am

    What will be the entry for work in progress?
    What will be the entry for work in Process ?
    Give me good formate of fund flow statement !

  9. Sarfraz Khan on August 16th, 2008 2:38 am

    This is very good idea to learn accounting concepts thank you very much and go ahead pls.

Leave a Reply




Bookkeeping Certificate

Bookkeeping Test

16 Accounting Exams

Accounting Crosswords