Historical cost

From Academic Kids

Template:Mergefrom The term historical cost describes the original cost of an asset at the time of purchase or payment as opposed to its saleable value, replacement value or value in present or alternative use.

In accounting, the historical cost principle dictates that most assets and liabilities should be recorded at their historical cost. It is one of the U.S. generally accepted accounting principles (GAAP). For example, a tract of land which was purchased 50 years ago for $10,000 may be worth $1 million today but it will be recorded on the balance sheet at cost: $10,000. The reason for adhering to the historical cost principle is its reliability when compared to other methods. In contrast to U.S. GAAP, under UK GAAP firms may revalue assets based on appraised market values. This can result in the recognition of unrealized gains as income.

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