In accounting we record many assets at their historical cost. As an example, if a business purchased a building in 2005 for $100,000, the financial statements would continue to show that building at $100,000 on its books (less depreciation). However, everyone knows that real estate generally increases in value over time. So wouldn't it be better to reflect on the balance the current the market value of the building as opposed to its historical cost? Why does using historical cost make from an accounting perspective?

Answer rating: 100% (QA)

Using historical cost in accounting is based on the principle of conservatism and provides a more objective and verifiable measure of financial transa... View the full answer