The use of the lower of cost or market method to value inventory for reporting purposes employs the accounting principle of matching.

Question

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The lower of cost or market method to value inventory is an application of the conservatism principle in accounting, not the matching principle. The conservatism principle guides accountants to choose the less optimistic estimate when faced with uncertainty, to avoid overstating assets or income. The matching principle, on the other hand, involves recognizing expenses in the same period as the revenues they helped to generate.

The Use of the Lower of Cost or Market Method