Definition

Noun: A reserve account is a sum of money that a company or organization sets aside from its profits to cover expected future costs, losses, or obligations. It is a portion of earnings not distributed as dividends but retained to strengthen the financial position.

Usage

This term is used primarily in accounting, finance, and business contexts to describe a specific type of financial planning. It refers to the deliberate allocation of profits to a separate holding to meet future, anticipated needs.

Examples

• The company's board voted to transfer $2 million to a reserve account for equipment upgrades next year.
• A prudent financial strategy includes maintaining a reserve account for potential economic downturns.
• The annual report showed an increase in the reserve account, indicating stronger financial safeguards.

Advanced Usage

• Creating/Establishing a Reserve Account: The act of formally setting up this fund.
  • The new policy involved establishing a legal reserve account for environmental remediation.
• Drawing on/Tapping into a Reserve Account: Using the funds from this account for their intended purpose.
  • During the crisis, the city had to draw on its reserve account to maintain essential services.

Variants and Related Words

• Reserve (noun): A more general term for something kept back or set aside for future use. A reserve account is a specific type of reserve.
• Allowance for Doubtful Accounts: A specific type of reserve account estimating uncollectible customer debts.
• Contingency Reserve: A reserve account specifically for unexpected events.
• Capital Reserve: A reserve account created from capital profits (like revaluation surplus) rather than revenue profits.

Synonyms

• Provision
• Allowance (in specific accounting contexts, e.g., allowance for depreciation)
• Retained earnings (broader term; a reserve account is a component of retained earnings)

Antonyms

• Distributed earnings
• Dividends paid

Related Phrases

• To appropriate to reserve: The formal accounting action of allocating profits to a reserve account.
  • The profits were appropriated to reserve rather than being paid out to shareholders.
• Reserve Fund: Often used interchangeably with "reserve account," particularly when the reserved money is highly liquid and readily available.

Noun

1. funds taken out of earnings to provide for anticipated future payments