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In accounting, the historical cost principle dictates that most assets and liabilities should be recorded at their historical cost. It is one of the U.S. generally accepted accounting principles (GAAP). For example, a tract of land which was purchased 50 years ago for $10,000 may be worth $1 million today but it will be recorded on the balance sheet at cost: $10,000. The reason for adhering to the historical cost principle is its reliability when compared to other methods. In contrast to U.S. GAAP, under UK GAAP firms may revalue assets based on appraised market values. This can result in the recognition of unrealized gains as income.
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