Reserve
Definition
An appropriation of retained earnings set aside within equity for a purpose such as future expansion or to strengthen the balance sheet. Unlike a provision, a reserve is part of equity, not a liability.
Related Terms in Core Accounting
Capital vs Revenue Expenditure
Capital expenditure buys or improves long-lived assets and is capitalised and depreciated; revenue expenditure covers day-to-day running costs and is expensed in the period. The split affects both profit and the balance sheet.
Intangible Asset
A non-physical asset with value, such as patents, trademarks, software and goodwill. Those with a finite life are amortised over that life, while indefinite-life intangibles are tested for impairment.
Impairment
A reduction in an asset's carrying amount when its recoverable value falls below what the books show. The write-down is recognised as a loss, keeping assets from being overstated.
Deferred Tax
A balance arising from timing differences between how items are treated in the accounts and in the tax computation. Deferred tax liabilities represent tax expected to be paid later; deferred tax assets, tax expected to be recovered.
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