Cost Concept:
The cost concept, also known as the historical cost concept, is an important accounting principle that states that assets should be recorded at their original purchase cost. According to this concept, the cost incurred to acquire an asset is shown in the balance sheet.

Explanation:
The balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It presents the company's assets, liabilities, and shareholders' equity. The cost concept dictates how assets are valued and reported on the balance sheet.

When an asset is acquired, it is initially recorded at its cost. This includes all costs incurred to bring the asset into its present condition and location for its intended use. These costs may include the purchase price, transportation costs, installation costs, and any other costs directly attributable to acquiring and preparing the asset for use.

Importance of the Cost Concept:
1. Objectivity: The cost concept provides an objective and verifiable basis for reporting assets on the balance sheet. It ensures that the financial statements are reliable and can be trusted by users.

2. Historical Information: The cost concept preserves the historical information about the asset's acquisition. This information is useful for comparing the asset's current value with its original cost and assessing its historical performance.

3. Consistency: The cost concept promotes consistency in financial reporting. By recording assets at their original cost, companies can compare their financial statements over time and make meaningful comparisons with other companies.

4. Prudence: The cost concept aligns with the principle of prudence, which requires accountants to be cautious and exercise a degree of conservatism in financial reporting. Recording assets at their cost ensures that the balance sheet does not overstate the company's financial position.

Example:
Suppose a company purchases a piece of machinery for $10,000. The cost concept dictates that the machinery should be recorded on the balance sheet at its original cost of $10,000. This cost will be reported as an asset on the balance sheet and will be used to calculate depreciation expense over the asset's useful life.

In conclusion, the cost concept is a fundamental accounting principle that governs the valuation and reporting of assets on the balance sheet. It ensures that assets are recorded at their original cost, providing reliable and consistent financial information to users of the financial statements.