The historical cost principle requires that an asset be recorded at the cash or cash equivalent amount that was given in exchange for it.

Question

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The historical cost principle states that assets should be recorded at their original cost at the time of purchase, which is usually the cash or cash equivalent amount paid. This is because historical cost is considered to be objective and verifiable. While there are alternative accounting methods, such as fair value accounting, the historical cost principle is still widely used in financial reporting.

The Historical Cost Principle Requires That an Asset Be Recorded