Original Cost

What is 'Original Cost'

Original cost is the total cost associated with the purchase of an asset. The original cost of an asset takes into consideration all of the costs that can be attributed to its purchase and to putting the asset to use. These costs can include such factors as the purchase price, commissions, transportation, appraisals, warranties and installation. Original cost can be used to value an asset type, including equipment, real estate and security instruments.

BREAKING DOWN 'Original Cost'

For example, the purchase price of a piece of equipment is $20,000. The purchase also involves $1,000 in fees, $700 in shipping and delivery costs, and $3,000 for installation and warranty. The original cost of this piece of equipment would be $20,000 + $1,000 + $700 + $3,000 = $24,700.


Determining an asset's original cost is important in calculating the asset's tax basis. The original cost of an asset encompasses more than the asset's purchase price, and the costs added together can reduce the potential taxable gain on the sale of the asset. The tax basis can be calculated by taking the original cost and subtracting the accumulated depreciation of the asset.

RELATED TERMS
  1. Replacement Cost

    The cost to replace the assets of a company or a property of ...
  2. Carrying Value

    An accounting measure of value, where the value of an asset or ...
  3. Capitalized Cost

    An expense that is added to the cost basis of a fixed asset on ...
  4. Cost Accounting

    A type of accounting process that aims to capture a company's ...
  5. Depreciated Cost

    1. The value of an asset net of all accumulated depreciation ...
  6. Applied Cost

    A term used in cost accounting to denote the cost assigned to ...
Related Articles
  1. Managing Wealth

    What Determines Your Cost Basis?

    In any transaction between a buyer and seller, the initial price paid in an exchange for a product or service will qualify as the cost basis. When it comes to securities and related financial ...
  2. Investing

    Understanding Historical Cost

    Historical cost equals the original purchase price of an asset recorded on a company’s balance sheet.
  3. Investing

    Explaining Capitalized Cost

    A capitalized cost is an expense associated with a fixed asset that is added to the basis of that asset and expensed over its depreciable life.
  4. Entrepreneurship & Small Business

    What Are The Different Types Of Costs In Cost Accounting?

    Cost accounting measures several different types of costs associated with a company’s production processes.
  5. Investing

    Understanding Carrying Value

    Carrying value is the value of an asset as listed on a company’s balance sheet. Carrying value is the same as book value.
  6. Managing Wealth

    What's an Asset?

    An asset is a resource with economic value.
  7. Managing Wealth

    What is a Real Asset?

    A real asset is a physical asset that has value.
  8. Investing

    Explaining Prime Cost

    Prime cost is a way of measuring the total cost of the production inputs needed to create a given output.
  9. Managing Wealth

    Know Your Stock Cost Basis

    Understanding equity cost basis is critical for tracking the gains or losses of an investment.
  10. Investing

    What are Acquisition Costs?

    A company can recognize acquisition costs as those costs used to buy property and equipment.
RELATED FAQS
  1. What is an adjusted cost basis and how is it calculated?

    Learn what adjusted cost basis is, how it is calculated, and why this metric is important for investors, business owners ... Read Answer >>
  2. How are fixed costs treated in cost accounting?

    Learn how fixed costs and variable costs are used in cost accounting to help a company's management in budgeting and controlling ... Read Answer >>
  3. How do I figure out my cost basis on a stock investment?

    The cost basis of any investment is the original value of an asset adjusted for stock splits, dividends and capital distributions. ... Read Answer >>
  4. What are typical examples of capitalized costs within a company?

    Learn examples of capitalized costs such as expenses incurred to put fixed assets to use as well as software development ... Read Answer >>
  5. Why do companies often treat events such as the purchase of an asset or construction ...

    Understand the capitalized costs of fixed assets and learn how they are reflected on a company's balance sheet and income ... Read Answer >>
  6. What is the difference between amortization and depreciation?

    Because very few assets last forever, one of the main principles of accrual accounting requires that an asset's cost be proportionally ... Read Answer >>
Hot Definitions
  1. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  2. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  3. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  4. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  5. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  6. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
Trading Center