What Are the Applications of Cost Principle?

Actual cost, also known as historical cost, refers to the cash or cash equivalents actually paid when acquiring or manufacturing a certain property. When measured at historical cost, assets are measured at the amount of cash or cash equivalents paid at the time of purchase, or at the fair value of the consideration paid at the time of purchase. Liabilities are measured according to the amount of money or assets actually received as a result of undertaking current obligations, or the amount of contracts to assume current obligations, or the amount of cash or cash equivalents expected to be paid in order to repay liabilities in daily activities. ^[1]

Actual cost

Actual cost: Actual cost is the cash or other equivalents that are actually paid when acquiring or manufacturing a property.

Actual cost and

Comparison of actual costing and planned costing:

The difference and connection between actual cost and theoretical cost:

Actual cost difference

The theoretical cost does not consider the consumption of accidental factors and abnormal conditions in production and operation activities, and only measures the normal consumption of physical labor and live labor. The actual cost is often affected by objective conditions, including economic policies and changes in current production and operation conditions.

The main reasons are as follows:

(1) The concept of calculating production consumption and compensation is different when there are multiple ownership and multiple production entities in China;

(2) Objectively there are changes in other costs caused by rising prices, increasing and decreasing labor remuneration, different fixed asset depreciation rates, and internal and external causes, even if the same production entity and the same cost object are calculated in different costing periods. Actual costs are of course different;

(3) Changes in macro-management policies and systems have caused adjustments in the content and scope of micro-costs to make actual costs deviate from theoretical costs to a certain extent.

Actual cost link

Application cost is the cost of specific practice under the guidance of theoretical cost. Its confirmation is based on theoretical cost. At the same time, it is the cost of testing theoretical cost. It is the practical cost of enriching and developing theoretical cost.