Accounting cost concept states that all assets are recorded in the books of accounts at their monetary cost of acquisition and not at its market price. It means that fixed assets like building, plant and machinery, furniture, etc., are recorded in the books of accounts at a total price paid for them. For example, a machine purchased by XYZ Limited for ₹ 5,00,000, for manufacturing shoes. An amount of ₹ 10,000 were spent on transporting. In addition, ₹ 5,000 were spent on its installation.

The total amount at which the machine will be recorded in the books of accounts would be the sum of all these items, i.e., ₹ 5,15,000. This cost is also known as historical cost. Suppose the market price of the same now ? 9,00,000 it will not be shown at this value. The effect of cost concept is that if the business entity does not pay anything for acquiring an asset this item would not appear in the books of accounts. Thus, goodwill appears in the accounts only if the entity has purchased this intangible asset for a price.But no accounting entry is made for free samples received as there is no cost.