Historical Cost Principle

The Historical Cost Principle states that assets are recorded on a company's financial statements at their original purchase price. This means the recorded value doesn’t change with market fluctuations or inflation. For example, if a company buys a building for $500,000, that amount remains on the books even if the property's market value later increases or decreases. This principle provides objectivity and reliability, as it is based on verifiable purchase records rather than estimates or current market values. It helps ensure consistency and comparability in financial reporting over time.