State BPA Fundamental Accounting Practice Exam

The accounting concept stating that the amount paid for assets is the amount recorded in the accounting journals is the?

1. Historical Cost concept

2. Matching principle

3. Revenue recognition principle

4. Going concern concept

The correct answer is: Historical Cost concept

The correct response is the Historical Cost concept, which asserts that assets should be recorded at their original purchase price, or the amount actually paid for them. This principle provides a clear and objective basis for valuing assets on financial statements, ensuring consistency and reliability. In practical terms, when a company acquires an asset, like machinery or equipment, the amount shown in the accounting records reflects the historical cash outlay rather than any subsequent changes in market value. This method simplifies record-keeping and aids in maintaining transparency in financial reporting. The other concepts refer to different accounting principles. The Matching principle focuses on aligning expenses with the revenues they generate during a given period. The Revenue recognition principle outlines the criteria for recognizing revenues when they are earned, regardless of when cash is received. The Going concern concept assumes that a business will continue to operate indefinitely unless there is evidence to the contrary. Each of these principles serves distinct roles in accounting, but none pertain specifically to the recording of asset costs in the same manner as the Historical Cost concept.