The lower of cost and net realizable value rule for inventory is an example of the application of:
A)The conservatism principle
B)The historical cost principle
C)The materiality constraint
D)The matching principle

Question

Quizplus · Accepted Answer

The lower of cost and net realizable value rule for inventory is an example of the application of the conservatism principle. This principle requires that when there are alternative methods of accounting, companies should choose the method that results in lower reported assets, lower income, and lower profits. In the case of inventory, the lower of cost and net realizable value rule ensures that inventory is not overstated on the balance sheet and that any losses due to declines in the value of inventory are recognized in a timely manner.

The Lower of Cost and Net Realizable Value Rule for Inventory