The historical cost accounting values an asset for balance sheet purposes at the price paid for the asset at the time of its purchase. Accountants record revenue, expenditure, and asset acquisition and disposal at historical cost that the substantial amounts of money, or money’s worth, received or paid to complete the transaction in the situation of historical cost accounting. For e.g., a company was purchased the land for RM 300,000 in 1988, and it expected the market value nowadays was RM 15 million, the assets still recorded on the balance sheet at RM 300,000.
Accounting is designed to collect, record, and then compile financial information into more accessible formats intended for its end users. Furthermore, accounting is planned to be a language that can be used to communicate financial information to its users in an efficient and effective manner. Accrual basis is a set of guidelines designed to guide certain crucial concepts in accounting, in the appropriate time when record deals. Accruals concept is very similar to the matching concept. Accruals basis of accounting ensures that expenses are “matched” with the revenue earned in an accounting period. For instance, a company obtained its rent and paid RM100,000 on February 2 as annual rent. It does not record the payment as an expense because the building is not yet used. Instead it records the cash payment as prepaid rent.
The consistency concept basically means a company must administering the alike method in each accounting period, unless it has a valid or substantial reason to change. Principally, the readers of a firm’s financial statements can suppose that the alike rules and measurements were followed in all the years being reported. If a diversity is made to a more preferred accounting method, the issues of the difference must be openly published. For example, every year, firm A has been using the straight-line depreciation way of 20% years for its office equipment but abruptly for this present year, it started to depreciate using rate of 10%.