Briefly Explain How a Material Adjustment to Inventory Due to Application

question 112

Essay

Briefly explain how a material adjustment to inventory due to application of the lower of cost or market (LCM) rule should be reported in the financial statements.

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Definitions:

Sales Discount

A reduction in the price of goods or services offered to customers, usually to accelerate sales or reward customer loyalty.

Credit Terms

The conditions under which credit is extended by a lender to a borrower, including repayment schedule, interest rate, and the amount of loan.

Net Realizable Value

The estimated selling price of goods, minus the cost of their sale or completion and any necessary disposal expenses.

Allowance for Doubtful Accounts

A concession for estimated bad debts that will arise from accounts receivable that may not be collectible.