Historical Cost


DEFINITION of 'Historical Cost'

A measure of value used in accounting in which the price of an asset on the balance sheet is based on its nominal or original cost when acquired by the company. The historical-cost method is used for assets in the U.S. under generally accepted accounting principals (GAAP).


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BREAKING DOWN 'Historical Cost'

Based on the historical-cost principle, under U.S. GAAP, most assets held on the balance sheet are to be recorded at the historical cost even if they have significantly changed in value over time.

For example, say the main headquarters of a company, which includes the land and building, was bought for $100,000 in 1925, and its expected market value today is $20 million. The asset is still recorded on the balance sheet at $100,000.

Not all assets are held at historical cost. For example, marketable securities are held at market value on the balance sheet.

  1. Balance Sheet

    A financial statement that summarizes a company's assets, liabilities ...
  2. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. ...
  3. Fixed Cost

    A cost that does not change with an increase or decrease in the ...
  4. Cash Basis

    A major accounting method that recognizes revenues and expenses ...
  5. Direct Cost

    A price that can be completely attributed to the production of ...
  6. Generally Accepted Accounting Principles ...

    The common set of accounting principles, standards and procedures ...
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  2. Can working capital be depreciated?

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  3. Do working capital funds expire?

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  4. How much working capital does a small business need?

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