General Reserve
Also called: Free Reserve
Profit the directors set aside by resolution for future needs or expansion, separate from Retained Earnings. On the Balance Sheet.
In detail
General Reserve is profit that the shareholders have voted to set aside rather than keep available for dividends, usually to strengthen the company or to meet a lender's condition. The transfer is made after the Period Closing Voucher, by a Journal Entry that debits Retained Earnings and credits this reserve for the amount in the AGM resolution. Nothing leaves the bank; the reserve is a label on equity, not a pot of cash, so make a separate fixed deposit if money is really to be kept aside. Banks and cooperatives are required by their regulators to hold such reserves; a private company does so by choice. The balance changes only by shareholder decision, so an unexplained movement is an error.
Formula
General Reserve = Opening reserve + Transfers from Retained Earnings approved at the AGM - Amounts released
Accounting entry
| Account | Debit | Credit |
|---|---|---|
| Retained Earnings | Rs 2,00,000 | |
| General Reserve | Rs 2,00,000 |
How to record it in BRAccount
- 01Record the AGM resolution stating the amount to transfer.
- 02Make sure the Period Closing Voucher for the year has been submitted.
- 03Go to Invoicing > Journal Entry > New dated the AGM date.
- 04Debit Retained Earnings and credit General Reserve with the resolved amount.
- 05Submit. The entry below posts and both ledgers show inside Equity on the Balance Sheet.
When to use it
Post by Journal Entry after the annual general meeting approves a transfer from Retained Earnings.
Example from the demo books
Dr Retained Earnings Rs 2,00,000, Cr General Reserve Rs 2,00,000 as resolved at the FY 2083-84 annual general meeting.