Historical Cost Principle Limits Inventory to Original Cost

Steps:

• Identify the rule: Inventory is recorded at cost, not higher selling price, per accounting standards.
• Recall key concepts: Accounting principles dictate asset valuation methods.
• Match scenario: Ignoring selling price above cost aligns with recording assets at acquisition cost.
• Eliminate mismatches: Rule doesn't relate to entity separation, uniform application, or double-entry.

Why D is correct:

• Historical cost principle requires assets like inventory to be valued at original purchase cost, preventing overstatement of profits by ignoring unrealized gains from market prices.

Why the others are wrong:

• A: Business entity separates owner and business transactions, unrelated to valuation.
• B: Consistency mandates uniform methods over periods, not specific to cost vs. selling price.
• C: Duality (double-entry) ensures debits equal credits, irrelevant to inventory pricing.

Final answer: D