Capital Reserves

Definition - What does Capital Reserves mean?

Capital reserves are reserves of cash that a company or other organization deliberately sets aside for the purpose of financing projects or other things in the future. In the context of the law, many companies are required to list capital reserves on their balance sheets, which are periodically reviewed by regulators.

Justipedia explains Capital Reserves

There are a number of ways for companies or organizations to generate capital reserves. For example, they can get them from sales, donations, subsidies, etc. Capital reserves are typically set aside from normal revenue that is used to pay for operating costs and dividends. Instead, they are usually separated until it is time to use them for something. For example, a space technology company may want to invest in a new machine, but they know that the machine may not be available for three years. So, they may add to their capital reserves and then use those reserves to pay for the machine once the three years pass.

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