Accounting Concepts: Historical Cost Accounting

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Define THREE (3) accounting concepts: historical cost; matching and prudence
Historical cost According to historical cost concepts, all transactions must be recorded at purchase price or purchase cost. The amount will be recorded in the accounting book despite the volatility of the market price of the item. The cost of buying is an objective value as the price is evident in business documents.
According to the matching principle, the revenue for an accounting period must be matched with the expenditure for that period to gain profit or loss for the period. The profit or loss of a business cannot be calculated based on receipt or payment within a period of time. Income for an accounting period is the amount of money received for the
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We do not need to rephrase the financial statements every year, despite the economic changes in inflation or deflation. It also makes the calculation of annual depreciation easier than having to deal with frequently changing asset values ( Baskerville 2015) Next is consistency, this concept is consistent with the aim of accounting which is primarily charged with accurately recording the past financials of a business.( Baskerville 2015) Moreover, the advantages of the historical concept are objectivity. It records the original cost of an item. Under historical accounting, it ensures the report of a financial position of a business is able to verify the independent documentary evidence. For example, invoice, receipt, voucher and etc. ( Baskerville 2015)…show more content…
Money is commonly used as the measuring unit while preparing a financial statement. The consolidated financial statements of the Group and the Company have been prepared using Ringgit Malaysia (RM), which is the Group’s and the Company’s functional currency. Transactions with other foreign countries will also translate into the functional currency- Ringgit Malaysia (RM) using the exchange rates prevailing at the dates of the transactions. In the annual report 2016 of 7-ELEVEN MALAYSIA HOLDINGS BERHAD (5250), Statement of Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity, Statement of Cash Flows and other accounts are all being prepared using Ringgit Malaysia (RM). This is because the company is located in Malaysia, hence the company must follow the laws of Malaysia which required them to present their annual report in currency of Malaysia- Ringgit Malaysia

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