The Value of a Cost Balance Sheet

Cost balance sheets value assets at purchase price less accumulated depreciation.  This accumulated depreciation can be done using tax or management depreciation methods. Management depreciation differs from tax depreciation by using the economic or useful life of the asset for depreciation calculations.

Using cost balance sheets allow lenders to better monitor the financial performance of the business over time.  With cost balance sheets, net worth growth comes from business retained earnings.  Cost value balance sheets do not have market valuation changes affecting the net worth of the business.  Hence true business performance is measured by the cost balance sheet.

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