The lower-of-cost-or-market rule requires a company to ________.

Question: The lower-of-cost-or-market rule requires a company to ________.

The lower-of-cost-or-market rule requires a company to value its inventory at the lower of its cost or its market value. This means that if the market value of an item in inventory has fallen below its cost, the company must write down the value of the inventory to match the market value.

The lower-of-cost-or-market rule is a generally accepted accounting principle (GAAP) in the United States. It is designed to ensure that companies do not overstate the value of their assets on their balance sheets.

Here is an example of how the lower-of-cost-or-market rule works:

A company buys 100 widgets for $1 each. The company's inventory is valued at $100.

A few months later, the market value of widgets falls to $0.50 each. The company must now write down the value of its inventory to $50, since that is the lower of the cost or the market value.

This write-down of inventory will result in a loss on the company's income statement. However, it is important to note that this is only a paper loss. The company has not actually lost any money, since it has not yet sold the widgets.

The lower-of-cost-or-market rule is an important accounting principle that helps to ensure that companies present a fair and accurate picture of their financial condition to their investors and creditors.