Question

Lisa Smith decided to start her CPA practice as a professional corporation, Smith CPA, PC. The corporation purchased an office building for $35,000. The real estate agent said the building was worth $50,000 in the current market. The corporation recorded the building as a $50,000 asset because Lisa believes that is the real value of the building. What concepts or principles of accounting is being violated?

Answer 1

The answer is: Cost principle

Step-by-step explanation:

The cost principle states that a business should record its assets, liabilities, and equity investments at their original purchase costs.

In this case, Lisa paid $35,000 for the office building, so the recorded price of the asset should be $35,000 and not $50,000.