Course Outline
Join PRO

What is the difference between reserve and provision?

Author:
Harold Averkamp, CPA, MBA

Definition of Reserve

Many decades ago, U.S. accountants decided to eliminate the word reserve when reporting the balances in contra asset accounts. The accounting profession felt that the word reserve might be interpreted to mean that money had been set aside to replace certain assets.

Examples of Past Use of Reserve

Two examples where the term reserve had been used include the following contra asset accounts:

However, U.S. companies continue to use the term reserve in regards to the accounting for inventories using the LIFO cost flow method. For example, the company will use a contra inventory account entitled LIFO Reserve to report the difference between the company’s current inventory cost (had FIFO been used) and the LIFO cost.

Definition of Provision

The term provision is sometimes used by corporations when reporting an expense that is an estimated or uncertain amount. Two examples include Provision for Doubtful Account Expense and Provision for Income Tax Expense.

NOTE: While some accountants use the term provision to describe the current year expense/increase in an account balance, others use provision to mean the balance in an account balance.

Join PRO to Track Progress

Features

Free

PRO

Lifetime Access (One-Time Fee)
Explanations
Quizzes
Q&A
Dictionary
Bookkeeping Video Training
Financial Statements Video Training
Visual Tutorials
Quick Tests
Quick Tests with Coaching
Cheat Sheets
Flashcards
Crossword Puzzles
Word Scrambles with Coaching
Bookkeeping Study Guide
Managerial and Cost Accounting Study Guide
Certificates of Achievement
Bookkeeping Certificate of Excellence
Business Forms
Printable PDF Files
Progress Tracking
Motivational Badges and Points
Motivational Medal Rankings
Motivational Activity Streaks
Public Profile Page of Achievements

About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

Read 3,033 Testimonials

PRO for Teams
  • Easily onboard new users and team admins
  • Monitor individual user progress and grades
  • Monitor team progress and compare users
  • View average grades and find problem areas
  • Monitor recent activity and user achievements
PRO for Teams
Take the Tour Join Pro Upgrade to Pro