Hi, what is the difference between ‘Reserves’ shown under liability and ‘Cash’ shown under assets in balance sheet? @Karthik
A portion of profits made during the year is saved under the general reserves of the company. The closing balance of reserve for this year is also the opening balance of the reserves for the current year, add to it a portion of the current year’s profit and you get the closing balance for the current year. What I’m trying to say here is that reserves get carried year on year.
Since this money belongs to the shareholders, from the company’s perspective this is a liability.
Cash, on the other hand, is an exact amount of cash that the company has in its bank accounts. Liquid cash is naturally an asset.
Check this chapter to understand how to read the Balance sheet of a company - https://zerodha.com/varsity/chapter/understanding-balance-sheet-statement-part-1/