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What is a 'Capital Reserve'

A capital reserve is a type of account on a municipality's or company's balance sheet that is reserved for long-term capital investment projects or any other large and anticipated expense(s) that will be incurred in the future. This type of reserve fund is set aside to ensure that the company or municipality has adequate funding to at least partially finance the project.

BREAKING DOWN 'Capital Reserve'

Contributions to the capital reserve account can be made from government subsidies, donated funds, or can be set aside from the firm's or municipality's regular revenue-generating operations. Once recorded on the reporting entity's balance sheet, these funds are only to be spent on the capital expenditure projects for which they were initially intended, excluding any unforeseen circumstances.

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