Reserves

This Capital & Reserves code forms part of the company's equity, relating to reserves. As with other equity accounts, it normally carries a credit balance: credit entries increase it and debit entries decrease it.

Real-world examples

Company revaluing its freehold premises

A business that owns its trading premises has them professionally revalued, showing a £120,000 increase. Because the gain hasn't been realised through a sale, it can't be recognised as profit — instead it's taken directly to reserves. The entry is a debit of £120,000 to the freehold property fixed asset account and a credit of £120,000 to 3100 (Reserves), increasing equity without touching the profit and loss account at all.

Company that's bought back and cancelled shares

When a company redeems or buys back shares out of distributable profits, company law requires a matching amount to be transferred to a capital redemption reserve, preserving the capital base. Cancelling £5,000 of nominal share value moves £5,000 out of profit and loss reserves: a credit of £5,000 to 3100 and a debit of £5,000 to 3200 (Profit and Loss Account). No cash moves in this entry — it's purely a reserve reclassification required by law.

Commonly confused with

Because code 3101 (Undistributed Reserves) sits right next to this one in Capital & Reserves, it's a common mis-posting target. Code 3100 is specifically for reserves, while 3101 covers undistributed reserves — similar in nature, but keeping them separate is what makes the capital & reserves section of your management accounts meaningful rather than a single lumped total.

What a mis-posting here costs you

Because Reserves sits within equity, errors here don't touch trading profit for the year — but they do distort the split between share capital, reserves and retained earnings that shareholders and the Companies House filing rely on being accurate.

Other codes in Capital & Reserves