Advantages and Disadvantages of Hstorical Cost Accounting
1241 WordsNov 10, 20065 Pages
Advantages and Disadvantages of Hstorical Cost Accounting Advantages and disadvantages of historical cost accounting, alternatives to historical cost accounting
Accounting concepts and conventions as used in accountancy are the rules and guidelines by which the accountant lives. The historical cost accounting convention is an accounting technique that values an asset for balance sheet purposes at the price paid for the asset at the time of its acquisition.
The historical cost accounting is the situation in which accountants record revenue, expenditure and asset acquisition and disposal at historical cost: that is, the actual amounts of money, or money 's worth, received or paid to complete the transaction.…show more content…
How is historical accounting better than alternatives?
Quite clearly the several limitations and flaws of the traditional historical costs method have been highlighted and picked upon from time to time. Still historical costs are the standard form of accounting due to its unique features and conventions that make it better than most available alternatives.
One of the main resources why historic accounting even though flawed forms the basis of our traditional accounting model is because accountants are reluctant to price the assets at current market value. Over the years number of cases relating to accounting malpractice and creative accounting have been exposed that have made accounting bodies reluctant from using current values which directly effect the share prices.
Accountants have to guard the integrity of their data against internal modifications. The use of current cost or exit price opens the door to manipulation of these numbers. The alternative measures for measuring and reporting assets provide management with considerable discretion and opportunities to influence the value of assets reported. Critics admit that the possibility of manipulation exits, but the profession can formulate rules on how current values are to be ascertained. Under historical cost accounting there is no room for manipulation and the data