The cash equivalent price that was paid to acquire an asset or service on a specific date. This cost includes, in addition to the price, any expenses incurred in procurement, such as transport/ handling expenses, insurance, etc. Differently put, it is the original cost at the time of a transaction. In this sense, historical cost is distinguished from its replacement cost, current market value, or inflation-adjusted cost.
For example, an asset bought ten years ago at cost of $10,000 and is still shown, today, on the balance sheet of the owning firm at this historical cost irrespective of its current market value. The historical cost principle requires that an asset be reported at its cost at the time of trade, including all additional expenses incurred in preparing the asset for use.
