GAAP stands for General Accepted Accounting Principles. GAAP requires that inventory be valued at the lower of either a) the cost originally paid, or b) the current market for that item. For example, consider that your company purchased a board for $1 three months ago, but the going market for a similar board today is $1.50. The lower of these two is the original cost, so it should be valued
. at $1. However, consider that you purchased a brush three months ago for $2 and today the same brush would cost only $1.50. In this case, the current market price is the lower, so you inventory of that item should be costed at $1.50.
