Asked by Angela Trevino on May 21, 2024
Verified
The use of the lower of cost or market method to value inventory for reporting purposes employs the accounting principle of matching.
Lower of Cost
An accounting principle requiring that inventory be recorded at the lower of its original cost or current market value.
Matching
An accounting principle where expenses are recorded in the period they are incurred to generate revenues.
- Acknowledge the importance and strategies of inventory valuation, with a focus on the lower of cost or market method.
- Comprehend the importance of the matching principle in accounting and its utilization in the valuation of inventory.
Verified Answer
JD
Jerulyn DizonMay 26, 2024
Final Answer :
False
Explanation :
The lower of cost or market method to value inventory is an application of the conservatism principle in accounting, not the matching principle. The conservatism principle guides accountants to choose the less optimistic estimate when faced with uncertainty, to avoid overstating assets or income. The matching principle, on the other hand, involves recognizing expenses in the same period as the revenues they helped to generate.
Learning Objectives
- Acknowledge the importance and strategies of inventory valuation, with a focus on the lower of cost or market method.
- Comprehend the importance of the matching principle in accounting and its utilization in the valuation of inventory.
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