Why do retailers use LCM?
• LCM has been the “best accounting practice” for tax purposes in the retail trade since 1918 and has always been the best accounting “retail trade” practice for generally accepted accounting principles (GAAP) purposes. RIM has been the best accounting practice since 1941 when a predecessor to the NRF had the method approved by Treasury just before WWII for department stores. LCM grew out of a need for the retail store to control its inventory during the 1930’s, taking into account the changes in value occurring in one period affecting the price of goods to be sold in a future period. If something occurs that diminishes the usefulness of inventory, the loss should be accounted for in the period in which it occurs. To do otherwise, and to retain the historic cost basis of the inventory, fails to achieve a proper matching of costs and revenue and fails to clearly reflect income. This effort was headed up by the industry and Professor N.P. McNair of the Harvard Graduate School of Business
