Book Value
Asset value on the balance sheet.
Formula
Variables
Example
Net carrying amount
How it works
Book value is the amount an asset is worth on the accounts after the business has recognized the portion of its cost that has been used up over time. It starts with the original purchase cost and then subtracts accumulated depreciation, which represents the total depreciation charged since the asset was bought. This works because accounting aims to show the remaining unexpired cost of the asset, not necessarily its current market price.
When to use it
Use this formula when you need to find the carrying amount of a fixed asset such as equipment, vehicles, or machinery on the balance sheet. It is also useful when checking whether an asset has been fully depreciated or when comparing an asset's accounting value with its sale price.
Worked example, step by step
Original cost of machine = $48,000 Accumulated depreciation = $18,500 Book value = Cost - Accumulated depreciation Book value = $48,000 - $18,500 Book value = $29,500 So, the machine's book value is $29,500.
Common mistakes to avoid
- Subtracting annual depreciation instead of total accumulated depreciation
- Using market value or resale value instead of accounting cost
- Forgetting that accumulated depreciation is a total from purchase to the current date
Did You Know?
Book value is what accounts say an asset is worth, often very different from its real market price.
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