The use of the lower-of-cost-or-market method for inventory is an application of the convention of conservatism.

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The lower-of-cost-or-market method for inventory is a method of valuing inventory where the inventory is recorded at the lower of its cost or its market value. This method is an application of the convention of conservatism, which requires that if there are two acceptable accounting alternatives, the one that is less likely to overstate assets or income should be chosen. By valuing inventory at the lower of cost or market, the company is being conservative in its accounting practices and ensuring that its financial statements do not overstate the value of its inventory.

The Use of the Lower-Of-Cost-Or-Market Method for Inventory Is an Application