Under the lower of cost and net realizable value basis, the adjusting entry to record a decline in net realizable value below cost includes a

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When the net realizable value of inventory falls below its cost, an adjusting entry is made to recognize this decline. This is done by debiting the Cost of Goods Sold account, which reflects the loss in value as an expense, thereby reducing the reported income for the period. This approach aligns with the conservatism principle in accounting, which advises recognizing expenses and losses as soon as they are foreseeable.

Under the Lower of Cost and Net Realizable Value Basis