Definition of valuation reserve

special account set up to offset changes in one or more accounts, for example, accumulated depreciation from depreciable fixed assets or dividends payable. When a bank believes a loan is uncollectible, it sets aside a portion of earnings equal in value to the estimated difference between the loan and the market value of the bad loan in the special account for loan loss reserves.

reserve or allowance, created by a charge to expenses (and therefore, in effect, taken out of profits) in order to provide for changes in the value of a company's assets. Accumulated depreciation, allowance for bad debts, and unamortized bond discount are three familiar examples of valuation reserves. Also called valuation account.