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Lower of Cost or Market definitions Flashcards

Lower of Cost or Market definitions
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  • Rule of Conservatism
    Accounting guideline prioritizing immediate recognition of losses over gains to ensure cautious financial reporting.
  • Historical Cost
    Original amount paid for an asset, used as the basis for valuing inventory unless a decline in value occurs.
  • Lower of Cost or Market Rule
    Inventory valuation method requiring reporting at the lesser of original cost or current market value.
  • Inventory Valuation
    Process of determining the monetary value of goods held for sale, influenced by cost and market considerations.
  • Market Value
    Current worth of inventory, determined by either net realizable value or replacement cost.
  • Net Realizable Value
    Estimated selling price of inventory minus any costs necessary to complete and sell the item.
  • Replacement Cost
    Amount required to acquire identical inventory in the current market.
  • Disposal Cost
    Expenses incurred to sell inventory, such as commissions or other selling-related outlays.
  • Write-Down
    Reduction in the book value of inventory to reflect a decrease in market value below historical cost.
  • Loss from Write-Down of Inventory
    Expense recognized when inventory value is reduced to market, representing the difference between cost and lower market value.
  • Journal Entry
    Formal accounting record documenting the debit and credit effects of a transaction, such as inventory write-downs.
  • Debit
    Accounting entry increasing assets or expenses, or decreasing liabilities or equity, used here to record losses.
  • Credit
    Accounting entry decreasing assets or expenses, or increasing liabilities or equity, used here to reduce inventory value.
  • Estimated Selling Price
    Projected amount for which inventory can be sold before deducting any selling costs.
  • Financial Statements
    Formal reports presenting a company's financial position, including inventory values adjusted under the lower of cost or market rule.