General reserve is an accounting instrument of securing an entity against its future liabilities, the maturity of which is not certain, while the certainty, or at least very probable, is the very fact of their occurrence. Their creation is mainly related to the risk of operations, so there is a reference to the precautionary principle. REserves are recognized in the balance sheet liabilities. Other objectives of general reserve include:
- improve of financial position and worth of the company
- prepare for payment of additional dividends to shareholders
- prepare for risk of eventual future losses from investment
- Penman, S. H., & Zhang, X. J. (2002). Accounting conservatism, the quality of earnings, and stock returns. The accounting review, 77(2), 237-264.
This is an article stub.