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About this document
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- 3 pages
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- $3 one-time, yours to keep
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- Format
- Subject
- Accounting
- Module
- Week 2 · Week 2
This document discusses the historical cost concept for long-term operational assets. It explains how assets are valued on the balance sheet and why the book value may differ from the market value. It is for Week 2 of the ACC 281 course.
What's inside
- Historical cost concept for long-term assets
- Balance sheet valuation
- Book value vs market value
- Depreciation of assets
- Edmonds' definition of historical cost
- Palmiter's explanation of book value
Who it is for: Students taking the ACC 281 course. (Undergraduate)
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Summary
The historical cost concept is explained for long-term operational assets. Students learn how this concept affects balance sheets and asset values.
Historical cost concept
The historical cost concept is defined. Long-term operational assets are recorded at the price paid. This value stays on the balance sheet until the asset is sold.
Asset value changes
Asset values may change over time. The historical cost concept does not reflect these changes in the accounts. Depreciation reduces the historical cost of assets.
Book value and market value
Book value and market value are explained. Book value is the net value of assets on the balance sheet. Market value is the current price of the asset.
Difference between book value and market value
Reasons why book value and market value differ are discussed. The difference comes from changes in asset value not shown in the accounts.
Key terms
- Historical cost concept
- The value at which long-term operational assets are recorded on the balance sheet.
- Book value
- The net value of assets on the balance sheet, after depreciation.
- Market value
- The current price at which an asset can be sold.
- Depreciation
- The reduction in the value of an asset over time.
- Long-term operational assets
- Assets that are used in the business for more than one year.
- Balance sheet
- A financial statement that shows a company's assets, liabilities, and equity.
Questions this document helps with
- What is the historical cost concept?
- How does depreciation affect asset values?
- Why might book value differ from market value?
Summary written with AI from the document's text.
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