Inventory Reserve

AAA

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.

INVESTOPEDIA EXPLAINS 'Inventory Reserve'

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 ...
  2. Contra Account

    An account found in an account ledger that is used to reduce ...
  3. Last In, First Out - LIFO

    An asset-management and valuation method that assumes that assets ...
  4. Inventory

    The raw materials, work-in-process goods and completely finished ...
  5. Generally Accepted Accounting Principles ...

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

    An asset-management and valuation method in which the assets ...
RELATED FAQS
  1. What are the generally accepted accounting principles for inventory reserves?

    As with most matters related to generally accepted accounting principles (GAAP), accountants assigned with the task of applying ... Read Full Answer >>
  2. How are contingent liabilities reflected on a balance sheet

    Contingent liabilities need to pass two thresholds before they can be reported in the financial statements. First, it must ... Read Full Answer >>
  3. How do businesses determine if an asset may be impaired?

    In the United States, assets are considered impaired when net carrying value (book value) exceeds expected future cash flows. ... Read Full Answer >>
  4. How can I set up an accrual accounting system for a small business?

    First, determine whether accrual accounting makes the most sense practically and financially. If the small business is also ... Read Full Answer >>
  5. Why is work in progress (WIP) considered a current asset in accounting?

    Accountants consider work in progress (WIP) to be a current asset because it is a type of inventory asset. Accountants consider ... Read Full Answer >>
  6. What are some ways a company can improve on its Return on Capital Employed (ROCE)?

    Options available to a company seeking to improve on its return on capital employed (ROCE) ratio include reducing costs, ... Read Full Answer >>
Related Articles
  1. Fundamental Analysis

    Inventory Valuation For Investors: FIFO And LIFO

    We go over these methods of calculating this component of the balance sheet, and how the choice affects the bottom line.
  2. Fundamental Analysis

    What is Quantitative Analysis?

    Quantitative analysis refers to the use of mathematical computations to analyze markets and investments.
  3. Economics

    Explaining Residual Value

    Residual value is a measurement of how much a fixed asset is worth at the end of its lease, or at the end of its useful life.
  4. Economics

    What is the Cash Ratio?

    The cash ratio is the ratio of a company's total cash and cash equivalents to its current liabilities.
  5. Fundamental Analysis

    Why Last In First Out Is Banned Under IFRS

    We explain why Last-In-First-Out is banned under IFRS
  6. Economics

    Understanding Carrying Value

    Carrying value is the value of an asset as listed on a company’s balance sheet. Carrying value is the same as book value.
  7. Economics

    International Financial Reporting Standards (IFRS)

    International Financial Reporting Standards are accounting rules and guidelines governing the reporting of different types of accounting transactions.
  8. Economics

    Explaining Property, Plant and Equipment

    Property, plant and equipment are company assets that are vital to business operations, but not easily liquidated.
  9. Economics

    How to Calculate Trailing 12 Months Income

    Trailing 12 months refers to the most recently completed one-year period of a company’s financial performance.
  10. Economics

    What is Unearned Revenue?

    Unearned revenue can be thought of as a "pre-payment" for goods or services which a person or company is expected to produce to the purchaser.

You May Also Like

Hot Definitions
  1. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  2. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  3. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  4. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  5. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
Trading Center