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Reserves give your organisation a disciplined way to set funds aside for specific future purposes — an emergency buffer, a loan-loss cushion, a building fund, or an equipment replacement cycle — without mixing those earmarked amounts with your general operating balance. When you allocate to a reserve, you are simply reclassifying a portion of retained earnings from undesignated to designated. The cash stays exactly where it is.
Reserves are accounting designations, not separate bank accounts. Creating a reserve or topping it up does not open a new bank account, does not move physical cash between your accounts, and does not change your organisation’s total equity. It only moves a portion of retained earnings into a labelled holding account within equity so you can track it separately.

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Common Reserve Types

Reserve NamePurposeSuggested Target
Emergency ReserveUnexpected expenses and cash-flow gaps3–6 months of operating expenses
Loan Loss ReserveCover potential bad debt from loan defaults5–10% of outstanding loan portfolio
Equipment ReplacementFuture purchase of computers, furniture, vehiclesBased on equipment replacement cycle and cost
Building FundSaving toward purchasing or constructing office spaceProject cost estimate
Dividend ReserveFunds earmarked for an upcoming member distributionPlanned dividend amount
Expansion FundNew branches, additional services, growth initiativesExpansion plan budget
Statutory ReserveLegally required reserves (varies by jurisdiction)Per applicable regulations

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How Reserve Operations Work

Each reserve allocation has a dedicated RESERVE_ALLOCATION ledger account with a unique scope key (reserve:{reserveId}). This account sits within the EQUITY section of your balance sheet, alongside Retained Earnings.

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Creating a Reserve

When you create a reserve, Agatabo sets up the metadata record and the linked ledger account. The opening balance is always zero — no funds are allocated until you explicitly top it up. Creating a reserve does not generate any journal entries.

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Allocating Funds (Top Up)

Topping up a reserve moves a specified amount from Retained Earnings into the reserve’s dedicated equity account. The journal entry kind is RESERVE_TOP_UP: 
Allocate 500,000 RWF to Emergency Fund:

Dr  RETAINED_EARNINGS                 500,000
    Cr  RESERVE_ALLOCATION (Emergency) 500,000

Result:
  Retained Earnings (undesignated): −500,000 RWF
  Emergency Fund balance:           +500,000 RWF
  Total organisation equity:        unchanged
Your organisation must have sufficient undesignated retained earnings before you can allocate. The system validates this automatically.

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Releasing Funds

Releasing from a reserve reverses the designation — funds move from the reserve back to Retained Earnings, making them available for general use. The journal entry kind is RESERVE_RELEASE: 
Release 200,000 RWF from Equipment Reserve:

Dr  RESERVE_ALLOCATION (Equipment)    200,000
    Cr  RETAINED_EARNINGS             200,000

Result:
  Equipment Reserve balance:          −200,000 RWF
  Retained Earnings (undesignated):   +200,000 RWF
  Total organisation equity:          unchanged

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Reserve-Funded Expenses

When you record an expense and specify a reserve as its funding source, Agatabo creates two linked journal entries in a single atomic operation: 
100,000 RWF emergency repair funded from Emergency Fund:

Entry 1 (RESERVE_RELEASE):
Dr  RESERVE_ALLOCATION (Emergency)    100,000
    Cr  RETAINED_EARNINGS             100,000

Entry 2 (RESERVE_EXPENSE, child of Entry 1):
Dr  OPERATING_EXPENSE (Repairs)       100,000
    Cr  CASH (bank account)           100,000

Net effect:
  Emergency Fund balance:   −100,000 RWF
  Bank balance:             −100,000 RWF
  Expense on P&L:           +100,000 RWF
The parent–child relationship between the two entries preserves the audit trail, making it clear which expense came from which reserve.

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Balance Sheet Integration

Reserves appear in the Equity section of your balance sheet, distinctly labelled under Reserve Allocations: 
EQUITY
  Opening Equity                         5,000,000
  Retained Earnings (undesignated)       6,700,000
  Reserve Allocations:
    Emergency Reserve          2,000,000
    Building Fund              1,500,000
    Loan Loss Reserve            500,000
  Total Reserve Allocations:            (4,000,000)
TOTAL EQUITY                            16,700,000
The undesignated retained earnings figure shows you exactly how much profit is available for new allocations, dividends, or operational use.

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Typical Reserve Workflow

1

Create the reserve

Navigate to Reserves → Add Reserve. Give it a clear, descriptive name and document the target amount and allocation policy in the description field.
2

Set an allocation policy

Decide on a regular allocation rhythm — for example, 15% of monthly net income to the Emergency Fund, or a fixed 100,000 RWF per month to the Equipment Reserve. Document this in your organisation’s financial policies.
3

Top up regularly

After each monthly period close, allocate to your reserves per your policy. Consistent small allocations build reserves faster than sporadic large ones.
4

Monitor balances

Review reserve balances quarterly. Compare actual balances against targets and adjust allocation rates if you are off track.
5

Release or spend when needed

When the reserved purpose arises, either release the funds back to Retained Earnings (then record the expense or purchase separately) or record a reserve-funded expense directly to create a linked audit trail.
6

Deactivate when complete

Once a reserve has served its purpose, mark it inactive rather than deleting it. Inactive reserves retain their full transaction history for audit purposes.

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Deletion Constraints

You can only delete a reserve if:
  • Its balance is exactly 0.00, and
  • It has never had any posted journal entries (no top-ups or releases ever recorded)
If the reserve has any transaction history, deactivate it instead.
Reserves cannot fund loan disbursements. Reserves are equity accounts; loans are funded from cash. If you want to ensure sufficient cash is available for lending, physically move funds between bank accounts using a manual journal entry or maintain adequate operational cash separately.

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Key Actions

Expenses

Use reserves to fund planned expenses without impacting current income.

Dividends

Distribute profits to members after setting aside your reserves.

Balance Sheet

See how reserves appear in the equity section of your balance sheet.

Period Closing

Review your reserve balances before closing each accounting period.