The lower-of-cost-or-net realizable value basis of valuing inventories is an example of
A) comparability.
B) the historical cost principle.
C) conservatism.
D) consistency.

Question

Quizplus · Accepted Answer

The lower-of-cost-or-net realizable value basis of valuing inventories is an example of conservatism, as it requires inventory to be recorded at the lower of its cost or its estimated selling price less the costs necessary to complete the sale. This conservative method of valuing inventory ensures that the balance sheet does not overstate the value of inventory, as it may not sell for its recorded amount.

The Lower-Of-Cost-Or-Net Realizable Value Basis of Valuing Inventories Is an Example