historical cost

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Historical cost

Describes the accounting cost carried in the books and reflecting the cost of the item at the time it was purchased, rather than its current value.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
To correctly value the assets, the traditional method of historical cost accounting is not applicable and thus the fair value method of accounting must be used.
The inflationary times, characterized by significant price increases, have shown that historical cost accounting provides a distorted picture of reality: both the balance sheet items and the expenses with amortization and stocks from income and loss accounts are underestimated.
Abstract: The history of accounting for private railway companies in Germany shows that these companies played a major role in the diffusion of historical cost accounting principles and gave birth, together with big other joint stock companies, to the "dynamic" or second stage of capitalist accounting, at least in continental Europe.
Historical cost accounting for corporate shares does not have that
Neither fair value nor historical cost accounting on its own is likely to achieve both characteristics, and an integration of the two may be necessary.
As the Financial Accounting Standards Board (FASB) continues to march toward fair value accounting and away from historical cost accounting, it's a good time to consider the flaws of fair value accounting.
During most of the last century, standard setters emphasized historical cost accounting. Under this traditional accounting model, the income statement, which results from matching an entity's revenues with expenses during a period of time, was considered the primary financial statement conveying useful information about a company's performance and value to shareholders.
Over the past 30 years, the Financial Accounting Standards Board in the United States and the International Accounting Standards Board have been moving away from historical cost accounting and heading towards fair value accounting, which involves having companies prepare their balance sheets on the basis of what assets are worth today, as opposed to what they cost when they were acquired.
Historical cost accounting just doesn't work for this purpose (though it is probably better suited for financial institutions than for other firms in which fixed assets make up a large part of the portfolio).
Financial derivatives were traditionally accounted for using historical cost accounting. Since many financial derivatives did not attract an initial cost, the presentation was limited to a note in the financial statements that did not reveal companies' real exposure.
We continue to see news stories about charges of earnings manipulation, even under the historical cost accounting framework.
Where Edwards and Bell may have segued rather than focused (and similar problems still exist) is the important intermediate point between historical cost accounting and estimates of the future--a point called "today." Today is the focus of market value estimates, even if they are made only as of a given date.

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