Book value

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Book value is the recorded cost on the books for the purchase of an asset. This recorded cost is known as the historical cost. Companies in the United States, in conjunction with Generally Accepted Accounting Principles (GAAP), record all assets at their historical cost. It is important to understand that the book value of an asset(particularly a fixed asset) does not neccesarily, and in fact, rarely coincides with an assets worth from a market value standpoint. According to the textbook (Essentials of Corporate Finance), market value is the "true value of an asset" or in other words "the amount of cash we would get if we actually sold it." Current assets often have similar book and market values because these assets are turned into cash in a very short period of time. Due to this quick turnover, there is not much time for the market value to fluctuate greatly from the book value. Fixed assets are much more likely to have a market value with greater deviation from the book value. This is because fixed assets have much more time to fluctuate according to market conditions.