The key difference between reserves and provisions relates to their nature.
A provision is created in respect of a loss or expense that is most likely to happen in the near future. For example, provisions for bad debts are created because a business knows out of experience that some of its debtors will fail to fully settle their dues.
A provision is created by making a debit to the profit and loss account (i.e., it represents an expense).
A reserve, on the other hand, is an appropriation of profit (i.e., it is created out of profits). Instead of crediting the entire profit to the partners’ current accounts, a portion is transferred to the reserve account.
The aim is not to cover a potential loss but to allow the growth or expansion of the business.
The balance of a provisions account is shown in the balance sheet as a deduction from some asset’s value (e.g., provisions for bad debts are deducted from the debtors account, and the net amount of this account is shown in the balance sheet).
A reserve, as such, is a part of the firm’s equity. It is shown in the balance sheet on the liabilities side, alongside the partners’ capital accounts.