Reserve fund

The reserve fund includes the components of capital. They can be used in the future to pay unforeseen expenses. The reserve fund of the organization is formed at the expense of real funds of net profit and is reflected in the corresponding article of the balance sheet - 82: "Reserve capital". Losses can occur at any time for objective or subjective reasons.

A reserve fund is a capital that is formed strictly on the basis of constituent documents of the organization and regulatory acts at the expense of funds representing a part of net profit. Information about him is an indicator of the financial condition of the enterprise. For a joint-stock company, the fund should be formed depending on the authorized capital, and it should be replenished annually by at least 5 percent of the net profit amount. The size of it can be changed upwards, if there is a corresponding resolution of the meeting of shareholders. In addition, if the authorized capital varies , then the amount of reserves decreases or increases.

A limited liability company is not legally obliged to have a reserve fund, unlike a joint-stock company, but at its own discretion it can form it. These funds can be directed to the social development of the enterprise, to replenish, if necessary, capital, to pay dividends, as well as to unforeseen expenses associated with the onset of the crisis.

The reserve funds of the joint-stock company may be used to cover expenses related to:

- with losses of the enterprise;

- with the need to pay dividends;

- With liquidation of the enterprise (for payment of debts);

- with other circumstances, which are fixed by legislation, and regulatory documents of the organization.

The disposal of funds lies in the area of responsibility of either the board of directors or the supervisory board. If there are losses, they are sent to their repayment, in whole or in part. Cash should be kept in accessible, but at the same time reliable financial instruments. Experts do not recommend creating a large reserve fund, since it takes a significant part of the capital out of the enterprise and the lost profit from their use can be quite high. These funds can not be used in the present tense and will not yield income in the future.

The reserve fund of the enterprise implies additional capital. It includes the total amount of the organization's property growth arising from revaluation, share premium and non-current assets received free of charge and is used to cover the arising losses.

The enterprise also uses the concept of a reserve of doubtful debts. Its formation is conditioned by the possibility of the occurrence of losses from outstanding bad or doubtful debts.

Formation of reserve fund

Reserve funds are formed on the basis of legally fixed documents, so the following stages should be taken into account:

• First, it is necessary to define the purposes according to which the funds will be distributed subsequently.
• Secondly, these goals should be included in the company's charter. Also it is necessary to fix the minimum size of both the fund itself and the amount of deductions to it.
• Thirdly, it is necessary to hold a meeting of founders, at which issues are being discussed about changes in the amounts of deductions and the manner in which they are spent. The meeting is recorded and certified, according to its results, an appropriate order is issued.
• Fourth, the balance sheet reflects net profit and funds directed to the reserve fund. Then you can make the appropriate transactions associated with spending or replenishing it, performing the posting in the balance sheet properly.