The cost principle states that an asset should be recognized on the balance sheet:
A) at the market value of the asset.
B) at the market value less the accumulated depreciation on the asset.
C) at its historical cost.
D) at its historical cost plus the accumulated depreciation on the asset.

Question

Quizplus · Accepted Answer

The cost principle states that assets should be recognized on the balance sheet at their historical cost, which is the original cost of acquiring or producing the asset. This is because the historical cost can be objectively determined and provides a reliable basis for measuring the performance and financial position of the business. Market value (A) is not relevant to the cost principle, and accumulated depreciation (B and D) represents the decline in the value of the asset over time due to wear and tear, and is therefore not relevant for recognizing the asset initially on the balance sheet.

The Cost Principle States That an Asset Should Be Recognized