Final answer:
The main basis for inventory accounting is cost, as it accurately reflects the expenditure on assets and aligns with economic measurements such as GDP, while avoiding overestimation through double counting.
Step-by-step explanation:
The main basis for recording and reporting inventory is cost. This accounting method is preferred because it reflects the actual amount spent to acquire the inventory. Unlike methods which might use gross selling price, book value, or current replacement cost, recording inventory at cost ensures that the business's financial records accurately reflect the value of assets as they are purchased.
This is important for both internal decision-making and external reporting, especially considering how inventory levels can fluctuate with business performance. An increase in inventories may indicate slower sales than expected, while a decrease could suggest better business conditions.
This method also avoids the problem of double counting in national income and Gross Domestic Product (GDP) calculations, where only the final value of goods and services should be measured to prevent overestimating the economic activity.