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Cost principle

Cost principle

The cost principle means that when putting an asset or liability on a companies balance sheet, the actual monetary cost of the asset/liability is used. It is sometimes known as the historical cost principle because the cost of purchase is all important. Any change in market value or inflation is ignored. For example, suppose a new machine is bought for £100,000. Then this will be listed on the balance sheet as an asset worth £100,000.Appreciation and depreciation Assets can both appreciate and depreciate. For…