Historical Cost Accounting Convention

Historical Cost Accounting Convention

An accounting technique that values an asset for balance sheet purposes at the price paid for the asset at the time of its acquisition.

Historical Cost Accounting Convention

In accounting, the practice of recording the historical cost of an asset as its cost on a balance sheet. Under the Generally Accepted Accounting Principles, the historical cost is the original cost of an asset that the buyer paid. Many assets, particularly illiquid assets, are recorded on a balance sheet according to the historical cost accounting convention. A notable exception to this rule is the recording of marketable securities, which are recorded according to their market value. It is important to note that 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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Because the historical cost accounting convention used for real estate assets requires straight-line depreciation (except on land), such accounting presentation implies that the value of real estate assets diminishes predictably over time.
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