What is the role of the cost of cost in accounting?

The primary role of the cost of the cost of accounting is to provide a stable and verifiable value for the asset. It is usually used for low value items. The principle is also used for short -term investments in which low value is obtained or lost.

One of the most common reasons for using the cost of cost in accounting is that this is a simple way to determine the approximate value. It can play a role in assessing assets, capital investments and obligations. Although the principle may not provide the exact current value, it also does not have a possible range of value error.

also known as the principle of historical costs, the role of accounting costs decreased due to its inaccuracy. This problem is less marked with any short -term posture, because there was not enough time to change significantly. It is mainly due to a change in the value that occurs for a long time. While the cost principle can be used if assets are modified for depreciation, it cannot be used to increase valuesy.

The overall concept of the cost principle is that the item should not be overestimated. For this reason, many accountants considered it an impractical principle. The attraction of its simplicity was reduced by complications associated with adjusting its inaccuracy.

The principle of cost does not play a role in tradable securities. In this case, the current item value is always reported. This is because the value of securities changes more often and dramatically than most other assets and obligations.

When the accounting uses the cost of the cost, most of the assets are recorded in the balance sheet. Although the total balance may not be accurate, the value of the items on the sheet will be at least balanced in relation to each other. If the item that has been recorded by the cost principle is sold at the current market value, the accountant will record the difference in the balance sheet.

Cost principle is one of the generally acceptedAccounting directors (GAAP) in the United States. The method was controversial due to its inaccuracy. Its simplicity is the primary reason why it continues to be used.