Lisa Smith decided to start her CPA practice as a sole proprietorship.The business purchased an office building for $35,000.The real estate agent said the building was worth $50,000 in the current market.The business 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 or original purchase price, and not at their current market value. In this case, the business is violating the cost principle by recording the building at $50,000 when it was purchased for $35,000. The economic entity assumption, monetary unit assumption, and going concern assumption are not relevant to this scenario.

Lisa Smith Decided to Start Her CPA Practice as a Sole