The accounting principle underpinning the inventory valuation rule 'the lower of cost and net realisable value' is:
A) matching costs with revenue.
B) prudence (conservatism).
C) historical cost.
D) going concern.

Question

Quizplus · Accepted Answer

The lower of cost and net realisable value principle is based on the prudence (conservatism) accounting principle, which states that companies should record liabilities and expenses as soon as possible, but delay the recognition of assets and revenue until they are assured of receiving them. This principle ensures that inventory is not overstated in value on the balance sheet, which could lead to misleading financial statements if the value of the inventory were to decline in the future.

The Accounting Principle Underpinning the Inventory Valuation Rule 'The Lower