25 Questions
What is the Cost Principle in accounting?
It states that assets and liabilities should be recorded at their original cost at the time of acquisition
When should assets and liabilities be recorded according to the Cost Principle?
At their original or historical cost at the time of acquisition
According to the Cost Principle, how should assets and liabilities be valued on financial statements?
At their original or historical cost at the time of acquisition
What does the Cost Principle state about recording assets and liabilities?
At their original or historical cost at the time of acquisition
Which accounting concept states that assets and liabilities should be recorded at their original cost?
Cost Principle
What is the main guideline of the Cost Principle in accounting?
Assets and liabilities should be recorded at original cost
What principle requires assets to be recorded on financial statements at the amount paid to acquire them?
Cost Principle
According to the Cost Principle, in what way should liabilities be recognized on financial statements?
At their original cost
What does the historical cost principle dictate when recording assets in accounting records?
Assets should be recorded at their original purchase cost
How does the historical cost principle contribute to financial reporting?
It promotes objectivity and reliability in financial statements
What is the main emphasis of the historical cost principle?
Using original purchase cost of assets
Why is it important to record assets at their original purchase cost according to the historical cost principle?
To promote objectivity and reliability in financial statements
What is the fundamental concept underlying the historical cost principle?
Recording assets at their original purchase cost
Which approach does the historical cost principle discourage in valuing assets?
Discourages using current market values for assets
What is one of the criticisms of the historical cost principle?
It may not accurately reflect the true economic value of an asset
What is a limitation of the historical cost principle in accounting?
It does not capture the potential gains in value that certain assets experience over time
Why is the original purchase cost considered a verifiable and concrete amount?
Because it is a clear basis for recording transactions
What is one of the advantages of using the historical cost principle for recording tangible assets?
It avoids the fluctuations that can occur when using market values
How are intangible assets such as patents, trademarks, and copyrights recorded under the historical cost principle?
At their original purchase cost including additional costs incurred to bring the asset to its intended use
Under the historical cost principle, how are investments in stocks, bonds, and other securities initially recorded?
At their original purchase cost
In what way does the historical cost principle simplify the accounting process for valuing and recording assets?
By providing a straightforward and easily understandable method for valuing assets
What does using the historical cost principle for tangible assets reduce?
Reduced potential subjective interpretations of asset values
When does subsequent changes in market value impact the value of investments on the balance sheet according to the historical cost principle?
When criteria for impairment are met
What is one criticism against using historical cost during periods of inflation or deflation?
It may not accurately reflect the true economic value of an asset
How does historical cost provide a stable and reliable measure of asset values during times of economic volatility?
By avoiding significant fluctuations in market value that can occur when using market values
Test your knowledge about the Cost Principle, also known as the Historical Cost Principle, which states that assets and liabilities should be recorded at their original or historical cost at the time of acquisition.
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