Reserves appear in companies mainly through retention of profits, as well as deposits of additional equity. Reserves are part of equity and serve the purpose of raising the internal financing potential, or financing by one's own means. Open reserves are shown on the liabilities side of the balance sheet (hidden reserves do not appear on the balance sheet). In contrast to provisions, reserves are not committed to one specifically-stated purpose.
Corporations differentiate open reserves into
- Capital reserves,
- Retained earnings and
- Statutory reserves.