Question

Answer in one Sentence only

What is meant by Reserve?

Answer 1

Reserve means the amount set aside out of the profits and other surplus to meet the financial uncertainties of business. In other words, it is meant for meeting unknown liabilitieslosses in the future. General Reserve, Capital Reserve etc are some of the examples of reserves. Creation of reserves does not reduce the net profit but only reduces the divisible profits. It is an appropriation out of profits and, thus, debited to the Profit and Loss Appropriation A/c.