When an amount is charged/provided in profit and loss account to meet a current nature liability or expense, it is called provision. The exact amount of expense or liability is not known at the time of making the provision e.g., what amount of debts we won’t be able to recover in the current debtors’ balance, what amount of tax we shall have to ultimately pay. If we take the example of debtors, we make a provision for doubtful debts and deduct it from the debtors’ balance in the balance sheet just to show the debtors near to actual i.e., these are the debts we are sure to receive.
A reserve is a periodic accumulation of amount to meet a long term plan or say liability. A reserve may be created to purchase a land for the business after five years. The reserve is shown on the credit side of the balance sheet.