Accounting for inventories under the generally accepted accounting principles (GAAP) requires companies to value their inventory at the lower of cost or market value. To determine the cost of inventory, GAAP allows for several methods, known as inventory valuation methods. These include First-In, First-Out (FIFO), Last-In, First-Out (LIFO), Weighted Average Cost (WAC), and Specific Identification (SI). Each method takes a unique approach to determining the cost of goods sold and affects financial reports differently from the others. Whether it be making sure you don’t overpay or preventing inventory shrinkage, accurately valuing your inventory is essential in running a successful business.