The accounting treatment of a reserve. The account (e.g., retrained earnings account) from which a reserve is being appropriated will be debited for the amount intended for the reserve account. On the other side of the double entry, the reserve account is to be credited for the same amount:

Retained earnings account (debit)

Reserve account (credit)

The balance of a reserve account can be used to address a specific risk requirement that might arise in the future.

When the requirement has been met, the above entry has to be reversed (crediting the balance back to the retained earnings account):

Reserve account (debit)

Retained earnings account (credit)

For example, an entity decided to set aside funds for a future foreign currency translation differences (reporting currency depreciation). Therefore, it credits a FX translation reserve for the estimated amount and debits retained earnings for the same amount. If FX translation losses have occurred, the entity need to debit its assets account (those affected by the losses/ depreciation in a reporting currency) and credit the corresponding reserve account (FX translation reserve account).

In the statement of financial position (balance sheet), reserves do not have to be presented in a stand-alone line item. Instead, an entity may aggregate them into retained earnings line item.