According to this measurement requirement of accounting elements, the acquisition, consumption and conversion of assets should be measured and recorded according to the actual expenditure when acquiring assets.
The acquisition and repayment of liabilities are measured, priced and recorded according to the actual expenditure of acquiring liabilities.
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Advantages of historical cost
First of all, historical costs are based on actual transactions, not on possible business. Under the historical cost measurement, every actual transaction should be recorded, and only in this way can the financial statements provide relevant data.
Japanese-American accountant Igiri pointed out that for current cost accounting or spot price accounting, it is completely possible to prepare a balance sheet based on the market price at the end of the year without considering the actual transaction situation.
Historical cost provides a basis for managers to prove how to perform their duties effectively, and records of past transactions are necessary to perform their management duties. Inoue Hideki believes that as long as the importance of management responsibility exists, historical cost must be adopted, and in custody accounting, fulfilling management responsibility is the main goal of accounting.
Therefore, the historical cost is determined for the actual transaction rather than the possible transaction, and is based on the recognition of both parties to the transaction, which has great reliability and verifiability.
Secondly, from the past, financial statements based on historical cost are also useful for decision-making. For a long time, management authorities, investors and creditors have made decisions based on historical cost information, and managers will also use the data of past transactions when making future business decisions.
They must be able to evaluate past business, which is reflected by historical costs. Inoue Hiroshi believes that "historical cost information will affect the evaluation and selection of decision-making rules." When deciding what decision rules to adopt, managers need qualitative information about their past decisions. Historical costs are related to past decisions.
In the decision-making process, it is also necessary to predict the future price, and the past price (historical cost) is a basis for future prediction.
Third, users of financial statements are always used to traditional accounting practices. Unless we find a more useful measurement attribute, people will not give up the historical cost rashly.
Fourth, in the case of price changes, although the relevance of historical cost attributes will decline, the practice circle is more inclined to supplement other measurement information outside the table, which can not only provide the required relevant information, but also reduce the risk.
Fifth, under the historical cost measurement, the accounting measurement procedure is simple, the data acquisition cost is low and the operability is strong. Historical cost is recorded by the actual economic business and events, and its vouchers are generally easy to obtain.
Moreover, historical cost only measures transactions and events for the first time, and once recorded, it will not be re-measured regardless of environmental changes. The concept of historical cost has been deeply rooted in people's hearts, and most people are familiar with the operation of historical cost.
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