Cost Principle
The Cost Principle states that all assets of a firm are entered into the books of account at their purchase price. This principle is one of the fundamental accounting principles that guide the recording and reporting of financial transactions.

Explanation:
The Cost Principle is based on the concept of historical cost, which means that assets are recorded at the amount paid to acquire them. It is important to note that the cost principle only considers the original purchase price of the asset and does not take into account any changes in market value or appreciation over time.

Reasoning:
The Cost Principle is applied in accounting for several reasons:

1. Objectivity: The principle provides an objective and verifiable basis for recording assets. The purchase price is a reliable and measurable value that can be supported by documentary evidence such as invoices, receipts, or contracts.

2. Reliability: The historical cost of an asset is a more reliable and objective measure compared to other valuation methods. Market values can fluctuate and be subjective, while the cost of an asset is a concrete and documented value.

3. Consistency: The cost principle promotes consistency in financial reporting. By recording assets at their original cost, it ensures that similar transactions are treated in a consistent manner across different periods and entities.

4. Decision-making: The cost principle provides relevant information for decision-making. It allows users of financial statements to assess the efficiency of asset utilization, evaluate the profitability of investments, and compare the performance of different entities based on their costs.

Example:
For example, if a company purchases a piece of equipment for $10,000, the cost principle requires that the equipment be recorded on the books of account at its purchase price of $10,000. This cost would be reported on the balance sheet as the historical cost of the asset.

Over time, the equipment may increase or decrease in value due to factors such as depreciation, technological advancements, or changes in market conditions. However, the cost principle does not allow for these changes to be reflected in the financial statements. Instead, the equipment would continue to be reported at its original cost until it is disposed of or its value is impaired.

In conclusion, the cost principle is an important accounting principle that ensures assets are recorded at their original purchase price. It provides objectivity, reliability, consistency, and relevant information for decision-making.