Final answer:
Exchange-price (or cost) concept (principle) requires an accountant to record transfers of resources at prices agreed on by the parties to the exchange at the time of exchange.
Step-by-step explanation:
This principle ensures that transactions are recorded at their fair market value and provides a reliable basis for financial reporting.
Here is a explanation of the exchange-price principle:
- 1. Transfers of resources: The exchange-price principle applies to transactions where resources are transferred between parties. This can include the purchase or sale of goods, services, or assets.
- 2. Prices agreed upon: The principle requires that the price of the transaction be determined by the agreement between the parties involved. This means that the recorded value of the transaction should reflect the actual price agreed upon at the time of the exchange.
- 3. Fair market value: By recording transactions at the agreed-upon prices, the exchange-price principle ensures that the financial statements reflect the fair market value of the resources exchanged. Fair market value represents the price at which the resources would be exchanged between knowledgeable, willing parties in an open market.
- 4. Reliable financial reporting: Following the exchange-price principle helps to provide accurate and reliable financial information. It ensures that transactions are recorded at their true value, reflecting the economic reality of the exchange. This principle contributes to the transparency and comparability of financial statements, allowing users of financial information to make informed decisions.
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Exchange-price (or cost) concept (principle) requires an accountant to record transfers of resources at _____ agreed on by the parties to the exchange at the time of ____.