Definition of Reserves

 Reserves are accounting terms. In general, it is saving of money, but in accounting terminology , it has different meaning.

According to accounting technician, “ Reserves are that funds which withdraw from general or special profit of business and keep it in safe pocket of company. This sum is used when any loss happens in business. "

Accounting Experts always in favor to keep some money or retain some fund for future losses, because future is uncertain and for increasing working capital of business, accountant should retain some money out of total profit before distribution it to shareholders. It is shown in profit and loss appropriation account. Indian company law has fixed it and in other countries , their company laws fix it and from time to time change it due to changing business environment.