The Total solution for NCERT class 6-12
Basis of Difference
Provision
Reserve
Meaning
It is created to meet the known liability.
It is created to meet unknown liability.
Nature
Provision is charged against profit.
Reserve is appropriation of the profit.
Purpose
It is created for a specific liability.
It is created for strengthening the financial position.
Mode of creation
It is created by debiting the profit and loss account.
It is created by debiting the profit and loss appropriation account.
Use for payment of dividend
It cannot be used for payment of dividends.
It can be used for payment of dividends.
Creation
Creation of provision is compulsory. It is created even if there is no profit.
Creation of reserve depends on the discretion of the management. It is created only when there is profit.