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Question

Financial statements are prepared on the basis of _________ cost.

A
marlet
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B
historical
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C
material
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D
net realizable
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Solution

The correct option is B historical
As per “Generally Accepted Accounting Principles (GAAP)” one of the important rule is to record all transactions on the basis of historical cost, which is verifiable from the documents such as cash receipt for the money paid. This brings in objectivity in the process of recording and makes the accounting statements more acceptable to various users.

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