The lower-of-cost-or-market rule demonstrates accounting conservatism in action.

Question

Quizplus · Accepted Answer

The lower-of-cost-or-market rule is an example of accounting conservatism, which requires accountants to err on the side of caution when making financial assumptions or estimations. This rule dictates that when the market value of an asset falls below its original cost, the asset should be written down to its lower market value. This conservative approach helps to ensure that financial statements do not overstate the value of assets or profits, which could be misleading to stakeholders.

The Lower-Of-Cost-Or-Market Rule Demonstrates Accounting Conservatism in Action