Why do accountants criticize the practice of carrying inventories at estimated net realizable values?
A) The costs of producing the products are usually estimates.
B) There is usually no clearly defined realizable value for any inventories.
C) In effect, this practice recognizes income before sales are made.
D) It will result in higher cost of goods sold and lesser profits.

Question

Quizplus · Accepted Answer

Carrying inventories at estimated net realizable values means recognizing income before sales are actually made, which goes against the accrual accounting principle of recognizing revenue when it is earned. This can result in inflated profits and misrepresent the financial position of the company. Therefore, this practice is criticized by accountants.

Why Do Accountants Criticize the Practice of Carrying Inventories at Estimated