valuation reserve

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valuation reserve

A company's accountant reviews the valuation reserve in the financial report.

Definition
  1. Noun:
    • A reserve fund created by a charge against profits in order to provide for changes in the value of a company's assets. This is an accounting term for money set aside from a company's earnings to cover potential future decreases in the value of its assets, such as investments or inventory.
Usage
  • Noun:
    • A valuation reserve is established on the balance sheet to reflect a more conservative and accurate value of the company's holdings.
    • The creation of a valuation reserve does not represent an actual cash outflow but is an accounting adjustment.
Examples
  • Noun:
    • The company recorded a significant valuation reserve against its overseas investments due to currency fluctuations.
    • Auditors recommended increasing the valuation reserve for the aging inventory.
Advanced Usage
  • "To build up / increase a valuation reserve": To allocate more funds to this reserve.
    • The finance committee decided to build up the valuation reserve to prepare for a potential market downturn.
  • "To draw down / utilize a valuation reserve": To use the funds from this reserve to cover an actual loss in value.
    • When the asset was finally sold at a loss, the company was able to draw down the valuation reserve to offset the impact on profits.
Variants and Related Words
  • Allowance for Doubtful Accounts (n): A specific type of valuation reserve for potential customer debts that may not be collected.
  • Provision (n): A broader accounting term for any amount set aside to cover a future liability or loss in asset value, often used similarly to a reserve.
  • Contra-Asset Account (n): An accounting category; a valuation reserve is typically held in a contra-asset account, which has a credit balance to offset the related asset account.
Synonyms
  • Valuation allowance: A direct synonym often used interchangeably in accounting.
  • Asset impairment reserve: A more specific term for a reserve created when an asset's market value falls below its book value.
Related Phrases
  • "To take a charge against profits": The action of reducing reported profits to fund a reserve like a valuation reserve.
    • The company had to take a charge against profits to establish the required valuation reserve.
  • "Balance sheet conservatism": An accounting principle that guides the creation of valuation reserves to avoid overstating asset values.
valuation reserve

A company's accountant reviews the valuation reserve in the financial report.

Noun
  1. a reserve fund created by a charge against profits in order to provide for changes in the value of a company's assets

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