Glossary
General reserve
Profit a company keeps back for no specific purpose, strengthening the business.
What it means
An amount of retained profit transferred to a named reserve at the directors' discretion, not earmarked for any particular use.
Example
Directors transfer RM10,000 of profit to a general reserve, leaving less available to pay as dividends.
Why it matters
It shows profit retained for stability and future flexibility; it stays part of shareholders' funds.
In practice
A general reserve sits in the equity section of the statement of financial position, listed among reserves alongside retained earnings and any share premium. It is created by transferring an amount out of retained earnings. This movement is shown in the statement of changes in equity. It is not an expense and never touches the income statement.
Suppose a company has retained earnings of RM60,000 and the directors move RM15,000 to a general reserve. Retained earnings falls to RM45,000 and the general reserve rises by RM15,000. Total equity is unchanged.
The purpose is prudence: keeping profit within the business without earmarking it for anything specific. It is easily confused with a provision. A provision is a charge against profit for a known likely liability or loss, such as doubtful debts. It reduces profit directly. A general reserve is an appropriation of profit already earned, set aside voluntarily.
If reserves and provisions look alike on the page, one of our teachers can show you how each one changes the statements. Book a trial class.
Related terms
Syllabus reference: Cambridge 0452 and 0985, syllabus for 2027 to 2029, sub-topic 5.3 Limited companies (page 16).
Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.
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