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Provision & Reserves Video Lecture - Commerce
FAQs on Provision & Reserves Video Lecture - Commerce
| 1. What are provisions and reserves in accounting? |  |
Ans. Provisions and reserves are accounting concepts used to set aside funds for future expenses or uncertainties. Provisions are specific amounts set aside for known liabilities or potential losses, while reserves are general funds set aside for future use or contingencies.
| 2. How are provisions and reserves different from each other? | |
Ans. The main difference between provisions and reserves lies in their purpose and timing. Provisions are made for known liabilities or potential losses that have a specific amount and are expected to occur in the near future. Reserves, on the other hand, are more general funds set aside for future use or contingencies without a specific timing or amount.
| 3. What is the purpose of creating provisions and reserves? | |
Ans. The purpose of creating provisions and reserves is to ensure that a company has enough funds to cover future expenses or uncertainties. Provisions help in accurately reflecting the financial position by accounting for known liabilities or potential losses. Reserves, on the other hand, provide a safety net for the company to handle unexpected expenses or future investments.
| 4. Can provisions and reserves impact a company's financial statements? | |
Ans. Yes, provisions and reserves can impact a company's financial statements. Provisions are recorded as expenses in the income statement, reducing the company's profits. Reserves, on the other hand, are typically shown as a part of equity in the balance sheet, indicating the company's retained earnings or accumulated profits.
| 5. Are there any legal or regulatory requirements for creating provisions and reserves? | |
Ans. Yes, there are legal and regulatory requirements for creating provisions and reserves. Accounting standards and regulations may specify the types of provisions that need to be created for certain liabilities or losses. Additionally, companies may be required to disclose the nature and amount of their reserves in their financial statements to provide transparency to investors and stakeholders.
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Dec 23, 2024 Last updated |
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