Definition, Meaning & Synonyms
lower-of-cost-or-market
Accounting Principle
/ˈloʊər əv kɔːst ɔːr ˈmɑrkɪt/
Definition
A valuation method used in accounting to report inventory at either its cost or its market value, whichever is lower.
Examples
- The company applied the lower-of-cost-or-market rule to ensure accurate inventory valuation in its financial statements.
- After evaluating the current market trends, the firm adjusted its inventory to fit the lower-of-cost-or-market guideline.
- Using lower-of-cost-or-market accounting helped the business avoid reporting inflated asset values.
Meaning
This principle ensures that inventory is not overstated on the financial statements. It requires businesses to evaluate their inventory and record it at a value that reflects either the historical cost or the current market value, minimizing potential losses.
Synonyms
- Lower of cost or net realizable value
- Conservatism principle in accounting
- Inventory valuation method
