Historical Cost Principle
The accounting practice of recording assets at their original purchase price rather than current market value, providing objective but potentially outdated valuations.
Historical Cost Principle
The accounting principle requiring assets and liabilities to be recorded at their original acquisition cost, with subsequent adjustments for depreciation, amortization, or impairment, but not for market value increases.
For instance, a building purchased for $1 million five years ago would still be recorded on the balance sheet at $1 million minus accumulated depreciation, even if its current market value has increased to $1.5 million.
Historical cost provides objective, verifiable values that are not subject to management manipulation or market volatility. While this approach enhances reliability, it may reduce relevance during periods of significant price changes or for assets held over long periods.