Executive Summary

Accounting concepts are the rules and guidelines used in accountancy and one of these is the historical cost accounting. This concept is an accounting technique that values an asset on the balance sheet at the price paid for the asset at the time of its acquisition. Moreover, the historical cost accounting is the situation in which accountants record revenue, expenditure and asset acquisition and disposal at historical cost. This means the actual amounts of money, or money’s worth, received or paid to complete the transaction. However, there are several limitations and flaws of the traditional historical costs method. But still, historical costs are the standard form of accounting due to its unique features and convention that make it better than most bases of measurements.

Table of Contents

3. ------------------------------------------------------- Introduction.
4. ------------------------------------------------------- Case 1. Relevant for decision-making.
5. ------------------------------------------------------- Case 2. Less subject to manipulation.
6. ------------------------------------------------------- Case 3. Irrelevant for decision-making.
7. ------------------------------------------------------- Case 4. Have flaws in times of inflation.
8. ------------------------------------------------------- Conclusion.
9. ------------------------------------------------------- References.

Introduction

Historical cost is a generally accepted accounting principle requiring all financial statements’ items be based upon original cost. Historical cost means what it cost the company for the item. It is not the fair market value. This means that if a company purchased a building, it is recorded on the balance sheet at its historical cost. It is not recorded at fair market value, which would be what