The Lower of Cost or Net Realizable Value Rule Is

question 44

True/False

The lower of cost or net realizable value rule is used due to the conservatism constraint,and therefore an inventory calculation may result in a departure from the historical cost principle.

---

Definitions:

Accounts Receivable

Funds that clients or customers owe to a company for products or services provided but for which payment has not yet been received.

Accounts Payable

Money owed by a company to its suppliers or vendors for goods and services received, representing a liability on the balance sheet.

Direct Method

A financial accounting method that allocates service department costs directly to production departments without considering services rendered between service departments.

Net Income

The final earnings of a corporation, calculated by subtracting all operating costs and tax liabilities from its total sales revenue.