Definition of Inventory reserve:
An inventory reserve is a contra asset account on a company's balance sheet made in anticipation of inventory that will not be able to be sold. Every year, a company has an inventory that will not be able to be sold for various reasons. It may spoil, fall out of fashion, or become technologically obsolete.
A term that refers to a reserve used to account for inventory that is not sold at its cost. This type of entry is used on the balance sheet to show earnings deductions on the worth of inventoried assets.
In anticipation of this, the company will create an entry on the balance sheet called inventory reserve. Inventory reserve accounts for the predicted amount of inventory that will not be able to be sold that year. Inventory is counted as an asset, and inventory reserve is counted as a contra asset, in that it reduces the net amount of inventory assets at the company.
How to use Inventory reserve in a sentence?
- Companies create inventory reserve accounts for the inventory they predict will not be able to be sold that year.
- Inventory is counted as an asset, and inventory reserve is counted as a contra asset, in that it reduces the number of inventory assets.
Meaning of Inventory reserve & Inventory reserve Definition