Lower of Cost and Market Method

AAA

DEFINITION of 'Lower of Cost and Market Method'

A requirement of GAAP in the United States that inventory be recorded at the lower of either the cost to produce it, the cost to repurchase it or the market value of the inventory.

INVESTOPEDIA EXPLAINS 'Lower of Cost and Market Method'

The lower of cost and market method has two boundaries on the valuation of inventories. The first is the inventory ceiling, which requires that inventory must be reported no higher than the net realizable value less expenses. The second boundary is the inventory floor, which requires that inventory value be reported at no lower than the net realizable value plus normally attainable profit.

RELATED TERMS
  1. Amortization

    1. The paying off of debt in regular installments over a period ...
  2. Depreciation

    1. A method of allocating the cost of a tangible asset over its ...
  3. Net Realizable Value - NRV

    The value of an asset that can be realized by a company or entity ...
  4. Inventory Reserve

    An accounting entry that represents a deduction from earnings ...
  5. Carrying Value

    An accounting measure of value, where the value of an asset or ...
  6. Generally Accepted Accounting Principles ...

    The common set of accounting principles, standards and procedures ...
Related Articles
  1. Inventory Valuation For Investors: FIFO ...
    Fundamental Analysis

    Inventory Valuation For Investors: FIFO ...

  2. What are the generally accepted accounting ...
    Investing

    What are the generally accepted accounting ...

  3. Texas Ratio Rounds Up Bank Failures
    Personal Finance

    Texas Ratio Rounds Up Bank Failures

  4. 12 Things You Need To Know About Financial ...
    Investing Basics

    12 Things You Need To Know About Financial ...

comments powered by Disqus
Hot Definitions
  1. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  2. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  3. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  4. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  5. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  6. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
Trading Center