Match each inventory accounting component or valuation principle on the left with its correct financial statement treatment or definition on the right.
- Net Realizable Value (NRV)Expected selling price less estimated costs necessary to complete and sell the goods
- Trading Account PresentationDeduction from cost of goods available for sale to arrive at cost of goods sold
- Balance Sheet PresentationListing closing inventory under current assets at the lower of cost and net realizable value
- Prudence Principle ApplicationValuing inventory at the lower of cost and net realizable value to avoid overstating assets and profit
Answer
Net Realizable Value (NRV) matches with expected selling price less estimated completion and selling costs; Trading Account Presentation matches with deduction from cost of goods available for sale; Balance Sheet Presentation matches with listing under current assets at the lower of cost and NRV; and Prudence Principle Application matches with valuing inventory at the lower of cost and NRV to prevent overstatement.
Each item accurately aligns with accounting rules for sole traders: Net Realizable Value equals selling price less costs to sell; the Trading Account deducts closing stock to compute cost of goods sold; the Balance Sheet presents closing stock as a current asset; and the prudence concept dictates valuation at the lower of cost and net realizable value.
Step-by-Step Solution
Key Concept
Valuation and Treatment of Inventory in Final Accounts