ECONOMICS

Detailed explanation-1: -Financial accounting is based on historical data. This information provides a guide for interpreting current conditions and future trends. Nevertheless, historical data is imperfect because it does not include non-financial aspects that can impact a company’s performance.

Detailed explanation-2: -The historical cost principle is a basic accounting principle under U.S. GAAP. Under the historical cost principle, most assets are to be recorded on the balance sheet at their historical cost even if they have significantly increased in value over time. Not all assets are held at historical cost.

Detailed explanation-3: -The historical cost principle states that a company or business must account for and record all assets at the original cost or purchase price on their balance sheet. No adjustments are made to reflect fluctuations in the market or changes resulting from inflationary fluctuations.