Lisa Smith decided to start her CPA practice as a professional corporation, Smith CPA, PC. The corporation purchased an office building for $35,000. The real estate agent said the building was worth $50,000 in the current market. The corporation recorded the building as a $50,000 asset because Lisa 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 is the amount paid to acquire them. In this case, the corporation purchased the building for $35,000, so it should be recorded at that cost rather than its estimated market value of $50,000. By recording it at a higher value, the corporation is violating the cost principle.

Lisa Smith Decided to Start Her CPA Practice as a Professional