What is the basic journal entry to create a general reserve?

Question

Quizplus · Accepted Answer

To create a general reserve, we need to transfer some portion of retained earnings to a separate reserve account. Therefore, we will debit Retained earnings account (which reduces the amount of retained earnings) and credit General reserve account (which increases the balance of the reserve account). Option A is incorrect as we cannot debit the reserve account to create it. Option B is incorrect as Profit or loss summary is used to transfer profits and losses to retained earnings and not general reserve. Option D is incorrect as we cannot debit Income account to create a general reserve.

What Is the Basic Journal Entry to Create a General