What is the book value?

The book value is the value of an asset according to its balance sheet account balance. For assets, the value is based on the original cost of the asset minus any costs or depreciation. A company’s book value is its total assets minus intangible assets and liabilities. In practice, the book value may variably include goodwill, intangible assets or both. When intangible assets and goodwill are explicitly excluded, the metric is often specified to be “tangible book value.”

Asset book value.

An asset’s book value is the actual value or its acquisition cost. Cash assets are recorded at their actual cash value. Fixed assets are valued based on their acquisition cost. This includes the actual cash cost of the asset plus certain costs tied to the purchase of an asset. Not all items that are purchased, will be recored as assets. Items such as incidental supplies will be recorded as expense. Some assets might be recorded as current expenses for tax purposes.

Depreciation, amortization and depletion.

The monthly or annual depreciation, amortization and depletion are used to reduce the book value of assets over time . This happens as they are used in the process of generating revenue. These are non-cash expenses that are recorded in the accounting books. It is done after a trial balance is calculated to ensure that cash transactions have been recorded accurately. Depreciation is used to record the declining value of assets over time. Land does not become depreciated. Amortization is used to record the declining value of intangible assets such as patents or copyrights. Depletion is used to record the consumption of natural resources.

Depreciation, amortization and depletion are recorded as expenses against a contra account. Contra accounts are used in bookkeeping to record asset and liability valuation chances. Accumulated depreciation is a contra-asset used to record asset depreciation.