Cost concept, Accounting Basics

The resources as machinery, property, buildings and land rights etc. such a business owns are termed as assets. The money values allocated to assets are derived from the cost concept. Such concept states that a benefit is worth the price paid for, or cost incurred to obtain it. Hence, assets are recorded as per their original purchase price and this cost is the origin for each subsequent accounting for the asset. The assets demonstrated on the financial statements do not essentially indicate their present market worth or market values. It is contrary to what is frequently believed through an uninformed person reading the report or statement. The term 'book value' is utilized for the amount demonstrated in the accounting records.

In the case of specific assets, the accounting values and market values might be same; cash is an obvious illustration. In general, the longer an asset has been owned through the company the less, are the chances such accounting value will correspond to the market value.

The cost concept does not imply that all assets continue on the accounting records at their original cost for always to come. The cost of an asset which has a long but restricted life is systematically decreased throughout its life by a process termed as 'depreciation' that will be discussed at several lengths in a subsequent unit. Suffice it to imply that depreciation is a process through which the cost of the asset is slowly reduced or written off through allocating a part of it to expense in all accounting period. It will have the effect of decreasing the profit of every period. In charging depreciation the intention is not to modify depreciation identical to the fall in the market value of the asset. While, there is no association among depreciation and changes in market value of the assets. The reason of depreciation is to assign the cost of an asset over its helpful life and not to adjust its cost in order to bring it closer to the market value.

The major argument is that the cost concept meets all the three fundamental criteria of relevance, feasibility and objectivity.

Posted Date: 4/3/2013 5:53:23 AM | Location : United States







Related Discussions:- Cost concept, Assignment Help, Ask Question on Cost concept, Get Answer, Expert's Help, Cost concept Discussions

Write discussion on Cost concept
Your posts are moderated
Related Questions
Q. Show Periodicity concept? As per to the periodicity (time periods) concept or assumption an entity's life can be meaningfully subdivided into time periods (such as months or

I need help understanding and filling out an income statement packet!

how to develop a course project having to do with writing notes for a fictitious annual report

What is procedure for testing after implementation as functional consultant? Ans) Testing involves a step by step check of several transactions configured in the SAP system.

Required: Record the following transaction on the spreadsheet, total each column a. Issued 100 shares of common stock for $12 per share, par=$1, on Jan 15, 2011. b. On Feb. 5 pu

Assorted fund, a U.K.-based globally diversified equity mutual fund, is considering adding Talisman Energy Inc. (Toronto Stock Exchange: TLM) to its portfolio. Talisman is an indep

Q. What is Owners invested cash? When Metro Courier Inc was structured as a corporation on 2010 June 1 the company issued shares of capital stock for USD 30000 cash to Ron Chan

what is meaning by parallel accounts

Q. Describe about Net sales? Sales -- amounts received or due for services or goods sold to customers. Gross sales aretotal sales before any returns or adjustments. Net sales a

hi I was wondering you use provide the solution of the back of the book for advance accounting theory by Craig Deegan 4 edition ISBN - 13: 978-007101314 - 7 ISBN - 10: 007101314