Inventory Reserve

A A A

DEFINITION

An accounting entry that represents a deduction from earnings for the purpose of fairly and reasonably representing the value of inventoried assets on a balance sheet. The inventory reserve is used to make up for the fact that all inventory will not be sold at the cost to the firm.

INVESTOPEDIA EXPLAINS

An inventory reserve is a contra account on a balance sheet, and an important part of inventory accounting in GAAP.


RELATED TERMS
  1. Amortization

    1. The paying off of debt in regular installments over a period of time. 2. ...
  2. Contra Account

    An account found in an account ledger that is used to reduce that value of a ...
  3. Periodic Inventory

    A method of inventory valuation for financial reporting purposes where a physical ...
  4. Backorder Costs

    A cost incurred by a business when it is unable to fill an order and must complete ...
  5. Generally Accepted Accounting Principles ...

    The common set of accounting principles, standards and procedures that companies ...
  6. First In, First Out - FIFO

    An asset-management and valuation method in which the assets produced or acquired ...
  7. Inventory

    The raw materials, work-in-process goods and completely finished goods that ...
  8. Last In, First Out - LIFO

    An asset-management and valuation method that assumes that assets produced or ...
  9. Depreciation

    1. A method of allocating the cost of a tangible asset over its useful life. ...
  10. Net Realizable Value - NRV

    The value of an asset that can be realized by a company or entity upon the sale ...
Related Articles
  1. Inventory Valuation For Investors: FIFO ...
    Fundamental Analysis

    Inventory Valuation For Investors: FIFO ...

  2. What are the generally accepted accounting ...
    Investing

    What are the generally accepted accounting ...

  3. How Return On Equity Can Help You Find ...
    Economics

    How Return On Equity Can Help You Find ...

  4. Top 4 Most Competitive Financial Careers
    Professionals

    Top 4 Most Competitive Financial Careers

  5. 4 Leverage Ratios Used In Evaluating ...
    Fundamental Analysis

    4 Leverage Ratios Used In Evaluating ...

  6. Operating Profit
    Investing

    Operating Profit

  7. How Does Goodwill Affect Stock Prices?
    Investing Basics

    How Does Goodwill Affect Stock Prices?

  8. Why is it sometimes better to use an ...
    Investing Basics

    Why is it sometimes better to use an ...

  9. How do you calculate working capital?
    Investing Basics

    How do you calculate working capital?

  10. How do changes in working capital affect ...
    Investing Basics

    How do changes in working capital affect ...

comments powered by Disqus
Hot Definitions
  1. Genuine Progress Indicator - GPI

    A metric used to measure the economic growth of a country. It is often considered as a replacement to the more well known gross domestic product (GDP) economic indicator. The GPI indicator takes everything the GDP uses into account, but also adds other figures that represent the cost of the negative effects related to economic activity (such as the cost of crime, cost of ozone depletion and cost of resource depletion, among others).
  2. Accelerated Share Repurchase - ASR

    A specific method by which corporations can repurchase outstanding shares of their stock. The accelerated share repurchase (ASR) is usually accomplished by the corporation purchasing shares of its stock from an investment bank. The investment bank borrows the shares from clients or share lenders and sells them to the company.
  3. Microeconomic Pricing Model

    A model of the way prices are set within a market for a given good. According to this model, prices are set based on the balance of supply and demand in the market. In general, profit incentives are said to resemble an "invisible hand" that guides competing participants to an equilibrium price. The demand curve in this model is determined by consumers attempting to maximize their utility, given their budget.
  4. Centralized Market

    A financial market structure that consists of having all orders routed to one central exchange with no other competing market. The quoted prices of the various securities listed on the exchange represent the only price that is available to investors seeking to buy or sell the specific asset.
  5. Balanced Investment Strategy

    A portfolio allocation and management method aimed at balancing risk and return. Such portfolios are generally divided equally between equities and fixed-income securities.
  6. Negative Carry

    A situation in which the cost of holding a security exceeds the yield earned. A negative carry situation is typically undesirable because it means the investor is losing money. An investor might, however, achieve a positive after-tax yield on a negative carry trade if the investment comes with tax advantages, as might be the case with a bond whose interest payments were nontaxable.
Trading Center