Final answer:
The Historical Cost Principle, or Cost Principle, in accounting states that assets should be recorded at their original cost when acquired. It provides reliability, objectivity, and consistency in financial reporting.
Step-by-step explanation:
The Historical Cost Principle, also known as the Cost Principle, is an accounting principle that states that assets should be recorded at their original cost when acquired. It implies that the value of an asset is based on the amount of money or cash equivalent that was initially paid to acquire it.
For example, if a company purchases a building for $500,000, the Historical Cost Principle requires that the building be recorded on the company's financial statements at its original cost of $500,000, rather than its fair market value or any subsequent increase in value.
This principle provides reliability and objectivity in financial reporting, as it relies on verifiable and objective historical evidence. It ensures consistency in the valuation of assets and facilitates comparability between different companies.