Question
Distinguish between ‘provision’ and ‘reserve’.
✓
Answer
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Basis of Difference
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Provision
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Reserve
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Meaning
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It is created to meet the known liability.
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It is created to meet unknown liability.
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Nature
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Provision is charged against profit.
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Reserve is appropriation of the profit.
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Purpose
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It is created for a specific liability.
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It is created for strengthening the financial position.
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Mode of creation
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It is created by debiting the profit and loss account.
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It is created by debiting the profit and loss appropriation account.
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Use for payment of dividend
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It cannot be used for payment of dividends.
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It can be used for payment of dividends.
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Creation
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Creation of provision is compulsory. It is created even if there is no profit.
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Creation of reserve depends on the discretion of the management. It is created only when there is profit.
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Similar questions
Enter the following transactions in the Journal of Manohar Lal & Sons:
|
2019
|
|
₹
|
|
Jan. 6
|
Sold goods for cash |
36,000
|
|
Jan. 8
|
Sold goods to Hari |
30,000
|
|
Jan. 14
|
Received cash from Hari
|
18,000
|
| Jan. 26 | Received Commission |
750
|
|
Jan. 27
|
Paid Salary to Gopal |
1,200
|
|
Jan. 28
|
Received cash from Hari |
12,000
|
|
Jan. 29
|
Withdrew cash from office for personal use |
4,000
|
|
Jan. 30
|
Wages paid |
7,200
|
| Jan. 30 | Bought Machinery for Cash | 8,000 |
Pass the Opening Entry from the following Balance Sheet as at 31st March, 2019 of Vikas:
Distinguish between revenue expenditure and capital expenditure.
Original cost of a Machinery ₹ 5,20,000; Salvage Value ₹ 20,000. What will be the amount of depreciation for second year according to diminishing balance method @ 10% p.a.
What is meant by the cash basis of accounting? Why is the cash basis of accounting not popular as a system of accounting?
A machine was purchased on 1st April, 2013. The balance of this machine on 31st March, 2016 is ₹ 5,83,200. Depreciation is charged @ 10% p.a. on written down value method. What was the cost price of the machine on 1st April, 2013?
Total of the purchase invoices recorded in the Purchases Book is posted to debit side of the Purchases Account in the Ledger and credited to the accounts of suppliers. Do you agree? Give reasons.
Prepare accounting equation from the following:
- Started business with cash ₹ 50,000 and goods ₹ 30,000.
- Purchased goods for cash ₹ 30,000 and on credit from Karan ₹ 20,000.
- Goods costing ₹ 40,000 were sold for ₹ 55,000 for cash.
- Withdrew cash for personal use ₹ 10,000.
- Rent outstanding ₹ 2,000.
Give two examples of provisions.
What do you understand by balancing of account?