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Definition

Cost & Cost principle

Cost consists of all expenditures necessary to acquire the asset and make it ready for its intended use. For example, the cost factory machinery includes the purchase price, freight costs paid by the purchaser, and installation costs. One cost is established, the company uses that amount as the basis of accounting for the plant asset over its useful life.

The cost principle requires that companies record plant assets at cost. Thus rent-A-Wreck records its vehicles at cost.

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