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What is historical cost?


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Historical cost is the original cost of the item on the date of purchase. It is used in accounting as a measure of value for recording price of assets on the balance sheet. 

An example of this may be seen in real estate purchases. Let us suppose that a company had purchased a building in 1932 in downtown New York at $10,000. In 2018, that building cost $10 billion. But the asset recorded on the balance sheet is $10,000.

Other than the purchase price, the historical price also includes any additional costs incurred to make the purchase full operating asset.

For example, the company purchased equipment for a restaurant at $25,000. Also, delivery and installation of equipment cost $2,500. Historical cost of restaurant equipment is $25,000 + $2,500 = $27,500. That value will be recorded on the balance sheet.

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