The measurement principle that requires reporting values on financial statements by referring to historical cost (HC)- as a measure of value (measurement base)- which is the actual amount paid or charged rather than the current market value or inflation-adjusted value. Historical cost is the price a buyer pays for an asset at the time of purchase. If an entity purchased a machine for $10,000 on 1 January 2020, its historical cost is $10,000.
The cost principle underpins, among other principles, generally accepted accounting principles. For example, assets should always be recognized at their cost (cash amount or cash equivalent amount), when the asset is acquired and also for the life of the asset.
The cost principle requires that an entity initially recognize an asset, liability, or equity investment at its original acquisition cost (as an entry value).
