Historical Cost

AAA

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).

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Fixed Cost

    A cost that does not change with an increase or decrease in the ...
  2. Balance Sheet

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

    A cost that has already been incurred and thus cannot be recovered. ...
  4. Generally Accepted Accounting Principles ...

    The common set of accounting principles, standards and procedures ...
  5. Direct Cost

    A price that can be completely attributed to the production of ...
  6. Cash Basis

    A major accounting method that recognizes revenues and expenses ...
Related Articles
  1. Investing Basics

    12 Things You Need To Know About Financial Statements

    Discover how to keep score of companies to increase your chances of choosing a winner.
  2. Retirement

    Common Clues Of Financial Statement Manipulation

    Search for the "bloody" fingerprints in accounting crimes.
  3. Fundamental Analysis

    What is the difference between operating cash flow and net income?

    Learn how net income is an income statement for a certain period of time, while cash flow shows inflows and outflows based on conversion of sales into cash.
  4. Fundamental Analysis

    How do I calculate dividend payout ratio from a balance sheet?

    Understand what the dividend payout ratio indicates and learn how it can be calculated using the figures from a company's balance sheet statement.
  5. Credit & Loans

    When is it necessary to get a letter of credit?

    Capitalize on assets and negate risks by using a letter of credit. Letters of credit are often requested for buying, selling or trading.
  6. Fundamental Analysis

    Can entities other than banks issue letters of credit?

    Obtaining a letter of credit from a non-bank is legally acceptable according to the ICC, but companies tend to prefer to receive them from banks.
  7. Investing Basics

    What is the difference between a fixed asset and a current asset?

    Discover the difference between fixed assets and current assets and the value of each to a company. Learn the category and where to record each asset.
  8. Investing Basics

    What is the difference between tangible and intangible assets?

    Discover the difference between tangible assets and intangible assets and the types of assets that are in each. Additionally, learn where these are recorded.
  9. Fundamental Analysis

    What is the difference between profitability and profit?

    Calculating company profit and profitability are not one and the same, and investors should understand the difference between the two terms.
  10. Fundamental Analysis

    Should companies break out accounts receivables into subledgers?

    Find out why every company that sells on credit should break down its accounts receivable into individual customer subsidiary ledgers, or subledgers.

You May Also Like

Hot Definitions
  1. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  2. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  3. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  4. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  5. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  6. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
Trading Center