Question

Which accounting rule serves as the primary basis for the lower-of-cost-or-market methodology for inventory valuation? A. conservatism B. consistency C. optimism D. pessimism

Name: Problem 7, Chapter 10: Principles of Accounting Volume 1: Financial Accounting
Uploaded: 2020-05-04T11:27:13-08:00
Duration: 8 min 9 s
Channel: Puneet Prajapati
Description: Which accounting rule serves as the primary basis for the lower-of-cost-or-market methodology for inventory valuation? A. conservatism B. consistency C. optimism D. pessimism

   Which accounting rule serves as the primary basis for the lower-of-cost-or-market methodology for inventory valuation?
A. conservatism
B. consistency
C. optimism
D. pessimism

Principles of Accounting Volume 1: Financial Accounting

Mitchell Franklin,… 1st Edition

Chapter 10, Problem 7

Instant Answer

Solved by Expert Puneet Prajapati

05/04/2020

Step 1

Step 1: The lower-of-cost-or-market methodology for inventory valuation is a concept that prevents the overstatement of assets and net income by reflecting the lower of cost or market value of inventory in the financial statements. Show more…

Show all steps

Thanks for your feedback!

Which accounting rule serves as the primary basis for the lower-of-cost-or-market methodology for inventory valuation? A. conservatism B. consistency C. optimism D. pessimism

Play audio

Feedback

Puneet Prajapati and 81 other educators are ready to help you.

Ask a new question

Labs

Want to see this concept in action?

NEW

Explore this concept interactively to see how it behaves as you change inputs.

View Labs

Key Concepts

Conservatism Principle

This is an accounting concept that favors less optimistic financial reporting. It dictates that potential losses should be recorded as soon as they are foreseeable, while gains should only be recorded when they are certain. The principle ensures that assets and income are not overstated and that liabilities are not understated, promoting a prudent approach to financial reporting.

Lower-of-Cost-or-Market Valuation

This is a method used in inventory valuation where inventory is reported at the lower value of its historical cost or its current market value. The methodology is applied in accordance with the conservatism principle, ensuring that any decline in the value of inventory is recognized promptly, which helps prevent overstatement of assets on the balance sheet.

Please give Ace some feedback