What is cost concept and explain its need in accounting (5)
Answers
Answer:
Sorry I can not answer.
Answer:
Please check the explanation section.
Explanation:
The cost concept of accounting states that all acquisition of items (such as assets or things needed for expending) should be recorded and retained in books at cost. Thus, if a balance sheet shows an asset at a certain value it should be assumed that this is its cost unless it is categorically stated otherwise.
Explanation
Under the cost concept of accounting, an asset should be recorded on its cost in which it was purchased regardless of its market value e.g. If a building is purchased for $5,00,000, it will continue to appear in the books at that figure irrespective of its market value. Under this concept stability in prices of assets while recording is achieved. There are also some limitations of this concept e.g. in case of inflation there will be an overstatement of net profit etc. Above all its limitations this concept is considered to be the best one when compared with alternatives.
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