When any amount is kept separate by a company out of its profit for future purpose then that is called as general reserves. General reserves are the part of Profit and Loss Appropriation Account. In other words the general reserve is a free reserves and surplus in balance sheet investopedia forex which can be utilized for any purpose after fulfilling certain conditions.
General reserves kept to offset some specific future losses. General reserves includes the money kept aside for litigation or revaluation. General reserves are shown in liabilities side of balance sheet. So is the value of general reserve in cash and debtors? Reserve means a provision for a specific purpose. There are lots of unknown expenditures which can occur in current year or in future.
To meet such type of expenses the business firm has to make the reserves. By maintaining the reserves, actual position of the profit and loss of any accounting year does not disturb. Surplus is the credit balance of the profit and loss account after providing for dividends, bonus, provision for taxation and general reserves etc. Surplus profit may also be earmarked for special purposes such as reserves for obsolescence of plant and machinery. Balance of profit is carried forward in next year as retained earning. Reserves and surpluses are shown in liabilities side of balance sheet. 14277062″,”qtitle”:”What are retained earnings and reserves and surplus?