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Dictionary definition: historical cost accounting
- Article from:
- A Dictionary of Business
Copyright© A Dictionary of Business and Management 2006, originally published by Oxford University Press 2006. (Hide copyright information)
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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
fixed assets
. The advantages of historical-cost accounting are that it is relatively objective, easy to apply, difficult to falsely manipulate, and suitable for audit verification. 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 ...