[amp_mcq option1=”Reserve” option2=”Provision” option3=”Liability” option4=”None of these” correct=”option2″]
The correct answer is: B. Provision
A provision is an amount set aside to meet a liability that is not certain to occur or the amount of which cannot be precisely determined. In the case of bad debts, a provision is set aside to cover the possibility that some of the company’s accounts receivable will not be collected.
A reserve is a fund that is set aside for a specific purpose, such as to meet future expenses or to provide for contingencies. Reserves are not liabilities, as they are not obligations to pay out money.
A liability is an obligation to pay out money in the future. Liabilities can arise from contracts, from the purchase of goods or services, or from the operation of a business.
Therefore, the correct answer is B. Provision.