Accounting Question Help

Question

1. Please explain what the following statement means in detail if you can, thank you.

The actual cost of assets or services is usually more reliable than market value.

NOTE: Consider the conflict between information that is timely (based on estimates) and reliable that may require additional time to ensure accuracy that may render the statements irrelevant.

Answer 1

Market cost is what someone might hypothetically pay on the open market for an item, whether it be an item like a car, computer, or house or a service like cleaning. Actual cost is what someone will actually pay when they see the item or how much an insurance company will pay to replace the item in case of damage or theft. If the market value of an item lingers too long, depreciating the item naturally, or not representing the true condition of the item or usefulness of the service, the actual value will be much more accurate.