What is the stock reserve?

Inventory reserve is the type of accounting entry that helps identify the amount of deduction required for the invention assets that have undergone a certain part of depreciation or deterioration or are considered obsolete in terms of business operation. The idea of ​​this type of accounting post is to allow the fact that some assets that remain in the inventory are no longer able to sell with a rate that would cover the original purchase price. The use of this type of input is in line with the generally accepted accounting principles and is used by many different types of businesses.

The use of reserves is possible with almost any inventory model. Record can be made whether the inventory operation is based on the first or first-out model or on the last model on the first or lifo. In both situations, the item causes the item to reduce the inventory value in the balance sheet. Current reserve for stocks will start an increase in the costs of the goods sold in the profit and loss statement. Depending on the amount of loss that arises fromRecord, can be listed as a separate line item in profit and loss statement than the more general cost of the section sold.

The use of the inventory reserve makes it possible to monitor situations where situations can be properly counted in the inventory. For example, if a textile company interrupts the use of a specific type of carding or spinning machines, all spare parts that are currently held in the plant repository can be considerable. While the goods can still be sold and part of the original costs will be obtained, these items still need to be removed from an active inventory to limit the amount of the tax that must be paid out of the value of the item value. Using the inventory inventory reserve helps minimize this tax burden to create a more balanced financial image for the company.

While there are a number of ways to benefit from a reserve in stocks, this tool can beAlso use to create a fake image of the company's financial stability. This is true if the item is used to manipulate accounting. For example, if the management decides to interpret a reserve during a period of prosperity, then some of these assets can remove from the reserve of supplies when the company is experiencing some kind of decline, thus representing a picture in a better financial situation than in reality.