Historical Cost Principles is an accounting concept that includes the use of original costs for assets, such as buildings and equipment, when recording them initially in a company’s financial statements. This approach also applies to inventory purchases and land acquisitions. When companies use the historical cost principle, they record these assets on their balance sheet at their original cost, even if the asset’s value has since risen or fallen. By adhering to this accounting practice, companies can maintain accurate records of their costs, protecting them from future losses due to inflation or decreased value. Ultimately, this essential business principle helps protect financial practices by allowing investors and other stakeholders to trust a company’s reported values.