By the term surplus we mean something extra, additional or marginal from the requirement a company earns 100 dollars per product its cost is 35 dollars after distribution of profit and dividend whatever the amount remains with the company is known as surplus.
The term reserve has its literal meaning as anything which is set for the future. It is an arrangement which is kept for the future use, further more in accounting reserves are subdivided into two categories 1st is for loss and 2nd is for profit, for losses general companies keep reserves with the title of Reserve for doubtful debts or reserve for discount on debtors.
The next category is which is profit it is a category in which funds from the profit which is net profit are to be set aside for the sudden or unexpected liabilities, these funds are also kept with the title of equalize dividend and to make more strong the financial position of the company such funds are kept aside.
The reserves mainly has two classes
1. Specific Reserves
2. General Reserves
1. Specific Reserves are typically know as Provision which are kept out of from the available net profit of any company, these provisions are made into order to meet expenses of the company which are yet to be paid and any outstanding wages.
2. General Reserves are set from the part of the Profit those people who have contributed to a company such as in shape of shareholders are needed to be paid for their contribution, these funds are also set to procreate the new capital like machine building or any other asset. Sometimes these are also used with the future unpleasant situation (loss).
These general reserves are also knows as surplus, these are presumed before the distribution, the account general reserve which are kept aside for the future use out of the profit these are not be used for things like liability, contingency, etc.
Sometimes company use to invest their funds outside of the company of its own mostly to distribute the percentage of loss or share the risk such investment is to be known as Reserve Funds. These investment are mostly based on the current asset so they can be easily converted into cash and make the optimum use when needed.
It is the opinion of the most of the accountant that the Term Reserve Funds should be only used as this represent a specific investment if not so only reserve is the best option to be set for the term.