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Research The Usefulness and Limitations of The THREE (3) Accounting Concepts Above
Research The Usefulness and Limitations of The THREE (3) Accounting Concepts Above
Historical cost concept is vital in accounting. Historical cost concept shows the original cost
you paid for an asset guarantee that they are recorded the objective cost. The price that they recorded
is based on the past transaction. Other than that, historical cost have limitation. For instance, the price
principles of some assets does not embody what the asset is currently value. If the price of an assets in
the market is frequently fluctuates, you need to look at its fair market value. Actually, the long-term
assets more problematic in this concept. This is because long-term assets are things that you do not
think to convert inti cash within one year such as premises, office equipment and so on. This concept
can be confusing when you are carry out your business. The market have changed when you buy and
when you sell it. The gap of the value will make you hard to define your firm’s financial health and
you need to explain the different values in your financial statement.
Even though consistency brings us usefulness but there is also limitation of this accounting
concept. The limitation of unlimited application of the doctrine is glaring when admitted errors are
repeated. To exclude an asset once from the balance sheet through error does not mean that future
balance sheets should exclude the asset just because it would be consistent to do so. (Binkley, M. A.,
2018)
Accrual concept used in income and expenditure that have been earned or spend. It is also
need to make sure that all the income and expenditure are recommend within the reporting period,
whatever of the timing of the concerning cash flow. Accrual concept records transactions only when it
pays out or receives cash. The cash basic output financial statement that are different from those
created under the accrual basic. For instance, a firm should prevent recognizing spends simply by
delaying its payments to suppliers. (Steven Bragg, 2018)