Your inventories can be valued at cost; the lower of cost or market; or any other method approved by the IRS. However, you are required to use cost if you are using the cash method of accounting.
If you are changing your method of accounting, refigure last year's closing inventory using your new method of accounting. If there is a difference between last year's closing inventory and the refigured amount, attach an explanation and take it into account when figuring your section 481(a) adjustment.
For more information see IRS Instructions for Schedule C.