In this course we learn the meaning and importance of reserves and provisions, along with other important concepts.
Certain accounting concepts, principles and conventions are followed while recording business transactions in the books of accounts and preparing final accounts. Going concern is a basic assumption among these accounting concepts, principles and conventions. As per this assumption, it is assumed that the existence of firm will continue for a considerably long period and it won't be dissolved in the near future.
In order for the firm to exist, it should be in a financially sound position.
For this purpose, some amount from the profit is appropriated and transferred to reserve, so that the firm can exist even in adverse situation and also so the firm can grow. To fulfill this objective, the principle of prudence is also followed in accounts. As per this principle, a part of the profit of business is kept aside and transferred to provision in advance to protect the business from future probable expenses or losses. Thus, reserves and provisions enhance long term financial soundness of the business and protect the business against contingencies. Here we shall study reserves and provisions in detail.
In this course:
+ Meaning, Characteristics and Importance of Provision and Reserve
+ Types of Reserves
+ Reserve Fund
+ Difference between General Reserve and Provision
+ Difference between General Reserve and Capital Reserve