An approach of accounting that reflects the actual and the reality of an event or transaction at the time it occurred or was made. In other words, it involves recognition at the moment of exchange, i.e., a value related to the past and which may not represent the real value of the item at the present time. The historical cost approach is based on the use of historical cost (HC) as a measurement base for assets and liabilities. At initial recognition, items, transactions, and events are recorded at cost (historical cost), i.e., the original nominal monetary value, which is not updated for changes in the items’ values over time, year to year.

The value created under this approach usually deviates from the present value, as does not keep pace with the the economic conditions that imply ongoing fluctuations in values over time.

The historical cost accounting (HCA), also known as historical cost method/ basis, requires that assets and liabilities be measured and reported at the original acquisition price at the time of the transaction or event. Later on, the reported value remains unadjusted for any changes in the prevailing market prices. For example, the book value of an asset is based on the price that was originally paid at initial recognition.