Write the meaning of Reserve and Provision.

Reserve refers to funds set aside from past profits to strengthen the financial position of a business or to meet future uncertainties. It is a voluntary act and not legally binding. Reserves are created to ensure the stability and growth of the business, such as for expansion, contingencies, or dividends. They are credited to the Income Summary or Profit & Loss Appropriation Account and appear on the liability side of the balance sheet.

Provision, on the other hand, is a fund created to meet known liabilities of uncertain timing or amount. It is mandatory and required by accounting principles or legal provisions. Provisions are debited to the Profit & Loss Account (as an expense) and credited to the provision account, reflecting a reduction in net profit. Examples include provisions for doubtful debts, taxation, or warranty claims. Provisions are also shown on the liability side of the balance sheet but are distinct from reserves due to their mandatory and risk-mitigating nature.