Lower Of Cost Or Net Realizable Value Formula

The Lower Of Cost Or Net Realizable Value (LCNRV) formula is an essential accounting practice used to determine the value of a company’s inventory. In essence, it compares the cost of the items purchased by the company, with their potential selling price in the market. Whichever value is lower is deemed to be the inventory’s net realizable value, or NRV. This figure is then used to assign its final value on the company’s balance sheet. In short, LCNRV encourages companies to stay aware of their inventory’s market values, and prevents them from overvaluing unsold goods.