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Historical cost is a fundamental principle of accounting.  It is that no asset should ever be valued at more than its historical cost.  However, the asset can be reduced if its value is impaired below the level of historical cost.

Historical cost is a fundamental principle of [[accounting]].  It is that no asset should ever be valued at more than its historical cost.  However, the asset can be reduced if its value is impaired below the level of historical cost.

Consider a car dealership that buys a car from someone for $10,000.  The dealer believes he can sell it for $12,000 but the car must be carried on his books for no more than $10,000.  The dealer will not recognize (record in the books) any profit until it is realized.

Consider a car dealership that buys a car from someone for $10,000.  The dealer believes he can sell it for $12,000 but the car must be carried on his books for no more than $10,000.  The dealer will not recognize (record in the books) any profit until it is realized.