Historical Cost Principle
Definition
The convention that assets are recorded at their original purchase cost rather than current market value. It gives a verifiable, objective basis for the accounts, though it can understate the current worth of long-held assets.
Related Terms in Accounting Principles
Revenue Recognition Principle
The rule that revenue is recorded when it is earned and realisable — when control of goods or services passes to the customer — regardless of when payment is received. Modern standards set a structured model for applying it.
Full Disclosure Principle
The convention that financial statements, including the notes, must reveal all information that could influence a reader's understanding or decisions. It underpins the detailed disclosures accompanying the primary statements.
Economic Entity Assumption
The convention that a business's transactions are kept separate from those of its owners and other businesses. It is why personal and business finances must not be mixed in the accounts.
Monetary Unit Assumption
The convention that only transactions measurable in a stable monetary unit are recorded, and that the currency's value is treated as reasonably stable over time. Non-monetary factors, however important, are not booked.
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