The accounting concept or principle that is perhaps the greatest single culprit in distorting the results of financial statement analysis is the:
A)Historical cost concept.
B)Matching principle.
C)Conservatism principle.
D)Time value of money concept.

Question

Quizplus · Accepted Answer

The historical cost concept requires that assets and liabilities be recorded at the original cost paid to acquire them, without any adjustment for changes in their market value. This can lead to distorted asset and liability values, which in turn can lead to distorted ratios and metrics used in financial statement analysis. For example, a company that purchased a piece of property many years ago for a low price will show that property on its balance sheet at the historical cost, which may be far below the property's current market value. This could make the company appear less asset-rich than it truly is, and could skew ratios such as the debt-to-equity ratio.

The Accounting Concept or Principle That Is Perhaps the Greatest