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It is the same as the accruals concept.
That we match the expenses to the revenue.
So, for example, we charge the cost of electricity for the year (and not simply the cash paid).
We spread the cost of a non-current asset (by depreciating) over the years during which it is earning revenue – we don’t charge the whole cost of the asset just in one year.Thank u sir, moreover in times of rising prices,what effect does the use of historical cost concept have on a companys asset values and profit? I don’t understand this question?
I know very well that it is in the mock exam which is why I deal with it specifically in my lectures!
You really must watch the lectures – I cannot simply type them all out here 🙂
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