A reserve (reserve account) that an entity creates out of uncontributed revenue gains for the net profit which is generated by an entity in the ordinary course of business (core operations) during a financial year. This reserve is usually used to maintain operations and business requirements (e.g., expansion/ future growth) in the future. This reserve is not distributed to owners in the form of dividends but is set aside for the future. A revenue reserve (a free reserve by nature) is reflected in profit and loss appropriation account.

It is presented in the statement of financial position (SFP) as part of owners’ funds.

Revenue reserves are classified as general reserves and specific reserves.

Broadly speaking, the main types of reserves are revenue reserves and capital reserves.