Which accounting principle states that investment cost should guide the treatment of income?

The principle that governs how investment cost should guide the treatment of income is the Revenue Recognition Principle. This principle dictates that revenue should be recognized when it is earned and realizable, which typically occurs when goods are delivered or services are performed. It emphasizes that the income recognized from investments should reflect the actual inflow of economic benefits from selling goods or providing services related to those investments.

The Revenue Recognition Principle ensures that financial statements provide a clear and accurate picture of the company's performance, aligning income with the associated costs and the timing of revenue generation. This helps stakeholders make informed decisions based on the financial health of the company and its activities in generating income related to investments.

While the Historical Cost Principle relates to the recording of assets and investments at their original cost, the Matching Principle focuses on aligning revenues with the expenses incurred to generate those revenues. The Conservatism Principle advises caution in reporting and recognizing revenues ahead of actual realization. Each of these principles plays a unique role in accounting but does not specifically address the guiding treatment of income based on investment cost like the Revenue Recognition Principle does.