What's the difference between book and market value?

By Investopedia Staff AAA
A:

Book value is the price paid for a particular asset. This price never changes so long as you own the asset. On the other hand, market value is the current price at which you can sell an asset.

For example, if you bought a house 10 years ago for $300,000, its book value for your entire period of ownership will remain $300,000. If you can sell the house today for $500,000, this would be the market value.

Book values are useful to help track profits and losses. If you have owned an investment for a long period of time, the difference between book and market values indicates the profit (or loss) incurred.

The need for book value also arises when it comes to generally accepted accounting principles. According to these rules, hard assets (like buildings and equipment) listed on a company's balance sheet can only be stated according to book value. This sometimes creates problems for companies with assets that have greatly appreciated - these assets cannot be re-priced and added to the overall value of the company.

For more on this topic, check out the articles Value By The Book and In Position.

RELATED FAQS

  1. How is reconciliation treated under generally accepted accounting principles (GAAP)?

    Read about some of the different treatments of reconciliation under GAAP, particularly with respect to IFRS accounting or ...
  2. Where did the concept of reconciliation in accounting come from?

    Learn about the history of account reconciliation, double-entry bookkeeping and the rise of modern accounting practices in ...
  3. Are all fixed costs considered sunk costs?

    Find out why all sunk costs are considered fixed, but not all fixed costs are considered sunk; see why variable costs become ...
  4. What is the difference between work in progress (WIP) and raw materials in accounting?

    Learn about the difference in inventory financial accounting between works in progress and raw materials, as reported in ...
RELATED TERMS
  1. Capital Expenditure (CAPEX)

    Funds used by a company to acquire or upgrade physical assets ...
  2. Accident Year Experience

    Premiums earned and losses incurred during a specific period ...
  3. Book Value Reduction

    Reducing the value at which an asset is carried on the books ...
  4. Inherent Risk

    The risk posed by an error or omission in a financial statement ...
  5. Deferred Tax Asset

    A deferred tax asset is an asset on a company's balance sheet ...
  6. Expanded Accounting Equation

    The expanded accounting equation is derived from the accounting ...

You May Also Like

Related Articles
  1. Budgeting

    Quickbooks vs. Quicken

  2. Fundamental Analysis

    The Best 5 Online Accounting Systems ...

  3. Investing Basics

    How To Calculate Goodwill

  4. Investing News

    Learn How To Invest Defensively From ...

  5. Stock Analysis

    Microsoft Recognizes A Multi-Billion ...

Trading Center