The principle which state that accounting information is based on actual cost is called the

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Rebekah Sandoval

Business

16 August, 12:13

The principle which state that accounting information is based on actual cost is called the

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Janiyah Duke · Answer 1

Answer: Its called the Historical Cost Concept

Explanation: The accountant must adhere to certain principles in the course of his/her daily business activities and the historical cost concept/principle is one of these. The historical cost principle states that an asset is recognized in the books of account according to its original cost as at the time of acquisition. In other words, an accountant determines the value of an asset by referring to its cost when it was acquired/purchased, and NOT by the value of the returns which are expected to be gained from the use of the asset.

As an example, if a piece of equipment was acquired at a cost of $250,000 and in the course of the next few years was able to yield as much as $1m in returns, the accounting records would still show the asset as worth $250,000, which was the original cost (actual cost).