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lower of cost or net realizable value

(Dictionary)

Author:
Harold Averkamp, CPA, MBA

Definition

In the context of inventory this means that the inventory should be reported at the lower of its cost or its net realizable value (NRV). The rule is associated with the conservatism guideline or principle.

Net realizable value is defined as the expected selling price in the ordinary course of business minus the cost of completion, displosal, and transportation.

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

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