Talking Cents

The cost principle explained by Small business accountants Melbourne

The cost principle is one of the basic underlying guidelines in accounting and is also known as the historical cost principle. Our small business accountants in Melbourne will explain what the cost principle is.

The cost principle requires assets to be recorded at the cash amount or equivalent, at the time an asset is acquired. It is also based off of straight-line depreciation, for example, if a $50,000 machine has a 10-year lifespan with no salvage value, its cost will decline $5,000 a year until it reaches $0.

If a company has an asset that already is marketed with quoted prices, the historical costs can be replaced with the current market value on the balance sheet. The cost principle in basic terms is the amount your asset will depreciate over time and how you should record it, which can be difficult for some items and it is always best to get our small business accountants in Southbank to help with the process.

Feel free to contact M.A.S, your small business accountants in Melbourne.