i am here to trade in my car for a new one . i bought it 5 years ago for $40,000 and now i want a newer and better one.
ok great! follow me inside and we can talk about what we can do for you.
this graph shows that with the value of your current car, plus an additional $15,000, these are your best options for your new potential car.
okay great! when can i see them?
Okay great! let's get the paperwork started then.
So how are you liking this car?
Oh it's very nice. i think this is the one i want!
Well, following our Gaap principles, and more specifically the cost principle, you can return the car you have now for the same value you had purchased it at and we will use that money towards the purchase of your new vehicle.
So how exactly does this work now?
yes, exactly. so are you ready to buy your new car?
so my vehicle right now was bought for $40,000 and the one i am purchasing, is $55,000. so now if i give you my car now, i only have to pay $15,000 fro my new car?
yes i am so excited!
Mrs. smith is now driving off with a brand new car worth $55,000 when she only paid $15,000 for it, all thanks to GAAP and the Cost principle.