| Basis of Difference | Provision | Reserve |
| 1.Meaning | It is created to meet the known liability. | It is created to meet unknown liability. |
| 2.Nature | Provision is charged against profit | Reserve is appropriation of the profit. |
| 3.Purpose | It is created for a specific liability. | It is created for strengthening the financial position. |
| 4.Mode of creation | It is created by debiting the profit and loss account. | It is created by debiting the profit and loss appropriation account. |
| 5. Use of payment of dividend | It cannot be used for payment of dividends. | It can be used for payment of dividends. |
| 6.Creation | Creation of provision is compulsory. It is created even if these is no profit. | Creation of reserve depends on the discretion of the management. It is created only when there is profit. |
