Historical Cost
The original purchase price of an asset, used as its recorded value on the balance sheet regardless of subsequent market value changes.
What is Historical Cost?
The historical cost principle is a foundational GAAP accounting concept that requires assets to be recorded at their original acquisition cost, not their current market value. Once recorded, most assets remain on the balance sheet at this original cost (adjusted for depreciation or amortization) unless impaired or revalued. Historical cost provides objectivity and verifiability because the purchase price is documented and free from subjective estimation. However, it can make a company's balance sheet appear understated when assets — particularly real estate or brand value — have appreciated significantly over time. The historical cost principle contrasts with fair value accounting, which reflects current market prices.
Example
A technology company purchased its headquarters building in 2000 for $50 million. By 2025, comparable properties in the same area sell for $300 million. Under the historical cost principle, the building remains on the balance sheet at $50 million less accumulated depreciation — say $20 million — for a net book value of $30 million. The $270 million appreciation is not reflected in the financial statements, making the company's reported book value significantly lower than its economic value.