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.

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