Reserves – What are reserves?
Definition: Reserves are any part of stockholders' equity, except for basic share capital. Reserves are amounts that are retained in the business and not distributed to the owners.
Stockholders' equity, except for basic share capital, is referred to as reserves. Reserves are retained in the business - they are not distributed to company owners.
These can be profits made by the business sometimes referred to as retained earnings and capital reserves which represent a perceived increase the value of some fixed assets such as land or buildings.
Use of the term 'reserves' in accounting
- Appropriation of retained earnings for a designated purpose, such as plant expansion. The purpose of the reserve is to tell stockholders and creditors that part of retained earnings is unavailable for dividends.
- Accrued liability, such as reserve for taxes.
- Contra account to the gross cost of an asset to arrive at the net amount, such as reserve for depreciation or reserve for bad debts. In this use, the term reserve is outdated; accumulated depreciation and allowance for bad debts are used instead.