In a cost saving effort, OMI Computers Ltd. manufactured its own hard drives to go into its laptop computer production rather than purchasing them from an outside supplier. The Company charged its inventory account for the price it would have paid the outside supplier. The difference between the supplier price and its own cost was recorded as a gain. OMI recorded the following journal entry:

Inventory $120,000

Cash $100,000

Gain on Purchase 20,000

Required:

1. Identify and briefly explain (in a sentence or two) what accounting principle(s) is/are involved. (Do not use faithful representation)