Inventory Reserve

DEFINITION of 'Inventory Reserve'

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.

BREAKING DOWN 'Inventory Reserve'

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