Meaning Of Revenue Reserve In Accounting

Revenue reserve refers to the sum of money retained in business so as to meet out future contingencies.

Meaning of revenue reserve in accounting. When an enterprise earns a profit during the end of a year a certain part of it is retained in the trading concern to meet future exigencies growth outlooks etc the amount of money that is kept aside is known as reserves in accounting. When the activity has been completed that caused the reserve to be created just reverse the entry to shift the balance back to the retained earnings account. There are various kinds of accounts kept by a company or business such as the cash account and expenditure account. Examples general reserve reserve for dividends equalization reserve for expansion reserve for increased cost of replacement etc.

In finance reserve accounting refers to how reserves are computed utilized and most importantly accounted for. A reserve account is simply a part of a company s net. Revenue reserves may further be classified as. Revenue reserve capital reserve.

An amount of money received from sales that a company keeps in a special account for future needs. Revenue profit of the firm are the source of revenue reserves. Reserves are shown on the liability side of a balance sheet under the head reserves and surplus along with. Revaluation reserve is an accounting term used when a company creates a line item on its balance sheet for the purpose of maintaining a reserve account tied to certain assets.

The name or label of a reserve account indicates its purpose. Revenue reserves are created out of profits which have been earned in the normal course and from the day to day activities of the business concern. There are mainly 2 different types of reserves. I revenue reserves and ii capital reserves.

Broadly there are two types of reserves. In accounting this process is referred to as appropriation. Accounting procedures for a reserve account. Similarly there is also a reserve account with its own ledger and balance sheet the word reserve actually refers to any portion of the shareholders equity.

The revenue reserve is the reserve that is created out of the profits of the company generated from its operating activities during a period of time and retained for the purpose of expanding its business or to meet out contingencies in the future. Capital reserve alludes to a fund that is created to finance long term project or write off capital expenses.