Historical Cost (redirected from Historical Cost concept)

Historical cost

Describes the accounting cost carried in the books for a current cost of the item.

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historical cost

The amount of money that was originally used to pay for an asset. A company records assets on a balance sheet at historical cost, which often bears little relation to the market value of the assets after they have been owned several years. Also called original cost.

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Historical Cost

In the Generally Accepted Accounting Principles, the original cost of an asset on a balance sheet. Many assets, particularly illiquid assets, are recorded on a balance sheet according to their historical cost. A notable exception to this rule is the recording of marketable securities, which are recorded according to their market value. The historical cost usually bears little or no relationship to the market value after an asset has been held for several years.

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Historical Cost

What Does Historical Cost Mean?

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 it was acquired by the company. The historical-cost method is used for assets in the United States under generally accepted accounting principles (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 their historical cost even if they have changed significantly 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:
• Accrual Accounting
• Balance Sheet
• Dollar-Cost Averaging
• First In, First Out—FIFO
• Generally Accepted Accounting Principles—GAAP