historical-cost accounting

historical-cost accounting
A system of accounting based primarily on the original costs incurred in a transaction. It is relaxed to some extent by such practices as the valuation of stock at the lower of cost and net realizable value and, in the UK, revaluation of fixed assets. The advantages of historical-cost accounting are that it is relatively objective, easy to apply, difficult to falsely manipulate, suitable for audit verification, and fulfils the stewardship function. In times of high inflation, however, the results of historical-cost accounting can be misleading as profit can be overstated, assets understated in terms of current values, and capital maintenance is only concerned with the nominal amount of the capital invested rather than its purchasing power. Because of these defects it is argued that historical-cost accounting is of little use for decision making, but attempts to replace it with such other methods as current-cost accounting have failed.
Company legislation sets out the rules for the application of historical-cost accounting to financial statements. Companies may also choose to use alternative accounting rules based on the modified historical-cost convention

Accounting dictionary. 2014.

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  • historical cost accounting — UK US noun [U] ACCOUNTING ► HISTORIC COST ACCOUNTING(Cf. ↑historic cost accounting) …   Financial and business terms

  • historical-cost accounting — A system of accounting based on the principle that assets should be valued at historical cost It is relaxed to some extent by such practices as the valuation of stock at the lower of cost and net realizable value and, in the UK, revaluation of… …   Big dictionary of business and management

  • historical cost accounting — /hɪ stɒrɪk(ə)l kɒst/ noun the preparation of accounts on the basis of historical cost, with assets valued at their original cost of purchase. Compare replacement cost accounting …   Dictionary of banking and finance

  • Historical Cost Accounting Convention — An accounting technique that values an asset for balance sheet purposes at the price paid for the asset at the time of its acquisition. Bloomberg Financial Dictionary …   Financial and business terms

  • Historical cost — Accountancy Key concepts Accountant · Accounting period · Bookkeeping · Cash and accrual basis · Cash flow management · Chart of accounts  …   Wikipedia

  • current-cost accounting — CCA A form of accounting in which the approach to capital maintenance is based on maintaining the operating capability of a business. Assets are valued at their deprival value, which is the loss that a business would suffer if it were to be… …   Accounting dictionary

  • current-cost accounting — CCA A form of accounting in which the approach to capital maintenance is based on maintaining the operating capability of a business. Assets are valued at their value to the business, which is the loss that a business would suffer if it were to… …   Big dictionary of business and management

  • historic cost accounting — UK US noun [U] (also historical cost accounting) ACCOUNTING ► a method of accounting that uses the original cost of something, with no changes made for inflation …   Financial and business terms

  • replacement cost accounting — /rɪˌpleɪsmənt kɒst ə kaυntɪŋ/ noun a method of accounting in which assets are valued at the amount it would cost to replace them, rather than at the original cost. Also called current cost accounting. Compare historical cost accounting …   Dictionary of banking and finance

  • Cost accounting — Accountancy Key concepts Accountant · Accounting period · Bookkeeping · Cash and accrual basis · Cash flow management · Chart of accounts  …   Wikipedia

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