The use of the lower of cost or market method to value inventory for reporting purposes employs the accounting principle of
A)cost-benefit.
B)matching.
C)historical cost.
D)conservatism.

Question

Quizplus · Accepted Answer

The use of the lower of cost or market method is an example of conservatism, which is the principle of recognizing losses and liabilities as soon as they become apparent, but delaying the recognition of gains and assets until their realization is assured. This method ensures that inventory is not overstated and that losses due to declines in market value are recognized immediately, even if they have not yet been realized through sales.

The Use of the Lower of Cost or Market Method