The Lower of Cost or Net Realizable (LCNRV) Method is a business accounting technique used to value inventory. Essentially, it offers a more realistic calculation than the traditional cost method by taking into account potential future market conditions and recent trends in sales. In other words, it’s an attempt to assign an accurate financial value to something that may not be worth its original cost.

Under the LCNRV method, a business would assess the current market value of its inventory and compare it to their purchase price or carry value. That is, when net realizable value is lower than the cost at which a good was purchased, the latter would prevail as the allocated value—in essence, cutting the company’s losses. By properly utilizing this approach, businesses can ensure the accuracy of their financial statements and make better-informed decisions about their investments.