Final Answer:
When we put inventory on the balance sheet, it is at the lower of cost or market value.
Step-by-step explanation:
The principle of valuing inventory at the lower of cost or market value is known as the Lower of Cost or Market (LCM) rule. This accounting principle ensures that inventory is presented on the balance sheet at a conservative and realistic value. The "cost" refers to the original cost of acquiring or producing the inventory, while "market value" represents the current replacement cost or net realizable value, whichever is lower. If the market value of the inventory falls below its cost, the LCM rule requires the inventory to be written down to the lower market value, reflecting a more accurate representation of its economic benefit to the business.