The lower of cost or market rule for inventory is an example of the principle of:

Question

Quizplus · Accepted Answer

The lower of cost or market (LCM) rule for inventory is an example of the principle of conservatism, which requires accountants to record transactions in a way that presents a more cautious picture of a company's financial situation. Under LCM rule, if the market value of inventory is lower than its recorded cost, the inventory must be written down to market value, which is a conservative approach to valuation. This principle prioritizes prudence over speculation, which is in line with the conservatism principle in accounting.

The Lower of Cost or Market Rule for Inventory Is