Reserves - What are reserves? Types of Reserves (2024)

FAQs

Reserves - What are reserves? Types of Reserves? ›

Reserves are portions of a company's earnings set aside to strengthen its financial position, fulfil future liabilities, or cover unforeseen expenses, ensuring financial stability and operational security. Types of Reserves include Legal Reserves, Capital Reserves, Revenue Reserves, and Secret Reserves.

Reserve can be defined as the share of available profits that a firm decides to keep aside to meet unforeseen financial obligations. Reserves in accounting are of 3 types – revenue reserve, capital reserve and specific reserve.

Examples of Reserves are general reserve, workmen compensation fund, investment fluctuation fund and capital reserve.

There are three main types of bank reserves: required, excess, and legal.

A reserve fund is savings or a liquid asset set aside to cover unexpected costs or future financial obligations. Many governments, financial institutions, and individuals regularly set aside funds into accounts that earn interest.

Reserves – also known as retained earnings – are portions of a business's profits which have been set aside to strengthen the business's financial position.

Some common synonyms of reserve are detain, keep, retain, and withhold. While all these words mean "to hold in one's possession or under one's control," reserve suggests a keeping in store for future use.

Actual reserves are amounts of money that the bank actually has on hand at any given moment. This includes amounts in the bank's vault, as well as in the Federal Reserve. This amount might differ from the amount that banks are required to hold.

to keep back, store up, or set apart for later use or for some special purpose. 2. to hold over to a later time. 3. to set aside or have set aside for a special person, etc.

What are the two types of bank reserves? ›

Bank reserves are termed either required reserves or excess reserves. The required reserve is the minimum cash the bank can keep on hand. The excess reserve is any cash over the required minimum that the bank is holding in its vault rather than lending out to businesses and consumers.

Reserves are the amount of money that banks keep in vaults, and they are a fraction of all deposits made. In most countries, banks are heavily regulated and are required to keep a minimum percentage of all deposits, just in case someone wants to withdraw some money.

Bank deposits at central bank

Commercial banks are usually required to keep funds in the bank's account with the central bank. Such funds are usually counted as part of the banks' reserves. Some central banks pay interest on these deposits while others do not.

In financial accounting, reserve always has a credit balance and can refer to a part of shareholders' equity, a liability for estimated claims, or contra-asset for uncollectible accounts. A reserve can appear in any part of shareholders' equity except for contributed or basic share capital.

Reserves are like savings accounts – an accumulation of funds for a future purpose. The source of funding for a reserve might be surpluses from operations, or scheduled transfers that have been planned and budgeted.

Reserves are deposits of natural resources like fuels, elements, and minerals that are known to exist with a reasonable level of certainty based on geological and engineering studies. These reserves are also recoverable economically with technologies that currently exist.

Examples of Reserve Resources are Water in the dams, forests, minerals, fossil fuels, etc. These are the resources available to meet future demands.

“Reserves” are quantities of oil and gas that are already discovered, recoverable, and commercial. Domestic reserves are tracked by the U.S. Energy Information Administration.