Definition of Historical cost:
The value of a unit of stock or other asset based on the original cost incurred when first bought or produced.
Accounting: Original cost of an asset, as it is carried on the books of a firm. In the UK and Netherlands, certain modifications to the historical cost are permitted, whereas in the US and Germany such practices are forbidden.
The historical cost principle is a basic accounting principle under U.S. GAAP. Under the historical cost principle, most assets are to be recorded on the balance sheet at their historical cost even if they have significantly increased in value over time. Not all assets are held at historical cost. For example, marketable securities are recorded at their fair market value on the balance sheet, and impaired intangible assets are written down from historical cost to their fair market value.
Cost accounting: Sum of money that was (or is assumed to have been) spent, on a purchase or an operation of a firm. Historical cost does not take the effects of inflation into account, and ignores the replacement cost of the resources consumed. Although (in inflationary times) historical costing can lead to inadequate allocation for replacement of assets, it is a very useful concept by virtue of being based on fact. The objective of its computation is to spread the actual amount spent over the units of production in a logical manner.
A historical cost is a measure of value used in accounting in which the value of an asset on the balance sheet is recorded at its original cost when acquired by the company. The historical cost method is used for fixed assets in the United States under generally accepted accounting principles (GAAP).
How to use Historical cost in a sentence?
- Highly liquid assets may be recorded at fair market value, and impaired assets may be written down to fair market value.
- Historical cost is one of the basic accounting principles laid out under generally accepted accounting principles (GAAP).
- Most long-term assets are recorded at their historical cost on a company's balance sheet.
- Historical cost is in line with conservative accounting, as it prevents overstating the value of an asset.
Meaning of Historical cost & Historical cost Definition