KomFi. Academy

Lower of cost or net realizable value (LCNRV)

Financial Accounting glossary · Assets: Cash, Receivables, Inventory, PP&E & Intangibles

Definition

Inventory measurement principle requiring write-down when NRV falls below cost.

Lower of cost or net realizable value (LCNRV) in plain English

This is the rule that forces a company to be realistic about what its unsold inventory is worth. "Cost" is what you originally paid for the goods; "net realizable value" (NRV) is what you could actually sell them for today, minus any costs to finish and sell them. LCNRV says: put whichever of those two numbers is LOWER on your books — never the higher one. It's basically accounting's version of not fooling yourself: if your stuff has lost value, you face it now rather than pretending it's still worth what you paid.

Also called: LCNRV

Learn these first

Sign up free: all 138 Financial Accounting terms as flashcards, plus practice questions with full explanations →

Related Financial Accounting terms

Financial Accounting practice questions · Financial Accounting flashcards · Financial Accounting study guide