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Dictionary definition: historical cost accounting
- Article from:
- A Dictionary of Finance and Banking
Copyright© A Dictionary of Finance and Banking 1997, originally published by Oxford University Press 1997. (Hide copyright information)
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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
capital 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, ...