What Is the Historical Cost Principle?

The cost principle is also known as the historical cost principle. The symmetry of the market price principle. Enterprise assets and expenses are based on the principle of acquisition cost. Specifically, the measurement of assets should be based on the actual repayment of the enterprise at the time the asset is obtained; the measurement of liabilities and funds should be based on the amount recognized by laws, regulations, contracts, or securities at the time the liability or fund was formed. The cost principle is premised on the assumption that the currency is unchanged. In addition, a basic theory of the historical cost principle is that the most important statement reflecting the company's operating conditions, the balance sheet, is designed to express the company's financial status through the comparison of the source and use of the company's funds, rather than the market price Indicates the current status of the property of the company. Therefore, the implementation of the historical cost principle is not only due, but also theoretically valid. However, under the condition of continuous inflation, it is difficult for the cost principle to accurately reflect the assets, liabilities and income of the enterprise. ^[1]

Cost principle

Right!

The cost principle is also known as the historical cost principle. The symmetry of the market price principle. Enterprise assets and expenses are based on the principle of acquisition cost. Specifically, the measurement of assets should be based on the actual repayment of the enterprise at the time the asset is obtained; the measurement of liabilities and funds should be based on the amount recognized by laws, regulations, contracts, or securities at the time the liability or fund was formed. The cost principle is premised on the assumption that the currency is unchanged. In addition, a basic theory of the historical cost principle is that the most important statement reflecting the company's operating conditions, the balance sheet, is designed to express the company's financial status through the comparison of the source and use of the company's funds, rather than the market price Indicates the current status of the property of the company. Therefore, the implementation of the historical cost principle is not only due, but also theoretically valid. However, under the condition of continuous inflation, it is difficult for the cost principle to accurately reflect the assets, liabilities and income of the enterprise. ^[1]

concept

Cost principle: An accounting principle that states that companies should record assets at their cost.

Cost principle: An accounting principle in which assets are valued at the exchange price at which they were acquired.

This accounting principle uses historical cost as the basis for initial accounting recognition of acquisitions, liabilities and owner's equity.