An abbreviation for lower of cost or net realizable value (NRV); it is an approach that aims to avoid reporting an entity’s inventory at an amount higher than the benefits it can produce. The LCNRV approach converts decreases of inventory below its cost into losses recorded in the accounting period in which such decreases occur, rather than later in the period that the items of inventory are ultimately sold.

If inventory is carried on the accounting books at a value greater than its net realizable value (NRV), a write-down from the recorded cost to the lower NRV has to be made to reflect the phenomenon. In accounting treatment, the inventory account is credited, and a loss for decline in NRV (the write-down) is made as an offsetting debit. This debit is charged against income (in the income statement).