Final answer:
The historical cost principle is an accounting principle that values assets at their original cost. The going concern assumption assumes that a business will continue to operate indefinitely. The historical cost principle would be of limited usefulness without the going concern assumption.
Step-by-step explanation:
The historical cost principle is an accounting principle that states that an asset should be recorded at its original cost, regardless of its current market value. This principle provides reliability and objectivity to financial statements. On the other hand, the going concern assumption assumes that a business will continue to operate indefinitely.
The historical cost principle is important because it ensures that financial statements are based on verifiable and objective information. Without this principle, companies would have the flexibility to manipulate their financial statements by valuing assets at inflated or deflated amounts. However, the usefulness of the historical cost principle is enhanced by the going concern assumption.
The going concern assumption is important because it allows companies to report values based on the assumption that they will continue to operate. This assumption is particularly relevant when valuing long-lived assets, such as property and equipment. If the going concern assumption was not considered, companies would need to value these assets based on their liquidation value, which may be significantly lower than their historical cost.