The fact that assets are recorded on the balance sheet at historical rather current values prevents the return on assets ratio (ROA) from being distorted by inflation.

Question

Quizplus · Accepted Answer

The historical cost principle states that assets are recorded on the balance sheet at their original cost, not their current value. This means that the ROA ratio can be distorted by inflation, as the value of assets on the balance sheet may not reflect their current market value.

The Fact That Assets Are Recorded on the Balance Sheet