Lorna Smith decided to start her own CPA practice as a professional corporation, Smith CPA PC. Her corporation purchased an office building for $35,000 that her real estate agent said was worth $50,000 in the current market. The corporation records the building as a $50,000 asset because Lorna believes that is the real value of the building. Which of the following concepts or principles of accounting is being violated?

Question

Quizplus · Accepted Answer

The cost principle states that assets should be recorded at their historical cost, which in this case is $35,000, not their perceived market value. Lorna's decision to record the building at $50,000 violates the cost principle.

Lorna Smith Decided to Start Her Own CPA Practice as a Professional