The cost principle assumes that the parties to a transaction are economically rational and are free to act independently of each other.

Question

Quizplus · Accepted Answer

The cost principle refers to recording an asset based on its original cost when it was purchased and not on its current market value. The assumption you described relates more closely to the economic principle of rational behavior and the concept of arm's length transaction, not the cost principle.

The Cost Principle Assumes That the Parties to a Transaction