Reserves are considered on the liability side of a balance sheet because they are sums of money that have been set aside to be paid out at a future date. This is the liability of the members of a company in respect of reserve capital (uncalled capital) of that company. As these reserves don’t actually belong to the company, they are not considered assets but liabilities. There are set standards for setting up balance sheet reserves depending on the state where the company is based. Liability Reserve Account means the balance to the credit of the Participant in a bookkeeping account established and maintained by the Bank for the benefit of the Participant under this Plan.
Balance sheet reserves appear as liabilities on a company’s balance sheet, one of the three main financial statements. It might be strange to think of reserves as constituting a liability. After all, reserves are supposed to be a good thing. If we have reserves of money, then we have money. Balance sheet reserves are particularly relevant in the insurance industry because companies must have sufficient funds to pay any claims filed by clients. Perhaps if we worded it differently, it’d be more clear. It’s not that the reserves are a liability right now. Rather, the reserves are held in the anticipation of future liabilities.
Any given company faces a number of unexpected and unpredictable situations. Reserves help a company deal with what might come it’s way. Balance sheet reserves are required of insurance companies by law to guarantee that an insurance company can pay any claims, losses, or benefits promised to claimants. For example, a global pandemic might come along making it hard for a company to continue to function and pay its employees. If that company has reserved, it can use them to keep operating and to compensate its workers.
Liability Reserve Account means a bookkeeping account established and maintained by the Bank for the benefit of the Participant under this Plan, where a portion of the Participant’s Normal Retirement Benefit is expensed and accrued under any appropriate method which the Administrator may select in its sole discretion.