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Cost concept of accounting

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.

The cost of an item may well be different from its true value but since ascertainment of true value would be judgmental and therefore subjective, stating assets at historical cost is generally accepted as fair way of maintaining records.

Following the cost concept means that unless there are special reasons for doing otherwise, cost of an item should be assumed to be its true value and that all accounting entries should be made at cost.

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