Cost principle is an accounting concept wherein the initial recording of the asset, liability, or equity is based on its acquisition cost.
It is beneficial in recording assets and liabilities that are short-term only. Inventories or expenses are recorded at cost.
Long term assets and liabilities are not suitable for the cost principle concept because of the factor of time. There are assets and liabilities that fluctuate in value as time goes by and these changes in values must always be recorded or noted down every end of the accounting period.
