Historical cost

Historical cost is an accounting principle that records an asset's value based on its original purchase price. It reflects the amount paid at the time of acquisition, regardless of changes in the asset's market value afterward. This method provides a consistent and objective way to track assets over time, making financial statements reliable. For example, if a company buys equipment for $10,000, that amount remains on the books, even if the equipment's current market value increases or decreases later. Essentially, historical cost emphasizes the actual cost paid, not fluctuating market values.