Why are inventories reported at the lower of cost and market?
A)Neutrality.
B)Matching.
C)Conservatism (prudence).
D)Comparability.

Question

Quizplus · Accepted Answer

The principle of conservatism, also known as prudence, requires that companies be cautious when recording losses and expenses. Reporting inventory at the lower of cost and market is an example of this principle. It ensures that inventory is not overstated on the balance sheet, which could mislead investors and creditors. In this approach, if the market value of inventory falls below its cost, the inventory must be written down to its market value, which is the more conservative (prudent) approach.

Why Are Inventories Reported at the Lower of Cost and Market