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Accounting

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  • June 25, 2020
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General Reserve

A reserve (reserve account) that an entity creates out of its profits for any currently specified or unspecified future purpose. It is usually appropriated out of retain earnings in order to meet future obligation, known and unknown at the time. As the name implies, a general reserve is formed for no specific purpose and can be used for any “general” reason in the future, usually including contingencies and emerging requirements.

By nature , a general reserve is a capital or a equity account. It appears in the statement of financial position (balance sheet) under liabilities and owners’ equity side (the right sided section of the statement).

The double entry for creation of a general reserve is:

Profit & loss (or retained earnings) – Debit

General reserve – Credit

The other main type of reserves is called a specific reserve (which is created for a specific purpose).


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