Reporting accounts receivable at net realizable value is a departure from the accounting principle of:___.

A historical cost is a measure of value used in accounting in which the value of an asset on the balance sheet is recorded at its original cost when acquired by the company. The historical cost method is used for fixed assets in the United States under generally accepted accounting principles (GAAP).

Understanding Historical Costs

The historical cost principle is a basic accounting principle under U.S. GAAP. Under the historical cost principle, most assets are to be recorded on the balance sheet at their historical cost even if they have significantly increased in value over time. Not all assets are held at historical cost. For example, marketable securities are recorded at their fair market value on the balance sheet, and impaired intangible assets are written down from historical cost to their fair market value.

Valuing assets at historical cost prevents overstating an asset's value when asset appreciation may be the result of volatile market conditions. For example, if a company's main headquarters, including the land and building, was purchased for $100,000 in 1925, and its expected market value today is $20 million, the asset is still recorded on the balance sheet at $100,000.

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