What is meant by "book value"?

The term "book value" refers to the value of an asset that is recorded on a company's balance sheet. It represents the original cost of the asset, minus any accumulated depreciation or amortization. This figure provides a historical perspective on the asset's worth according to the company's accounting records.

Book value is important in financial reporting as it helps stakeholders understand the organization's financial position and the value of its assets. It is crucial for assessing the net worth of a company and aids in various analytical evaluations, like determining return on investment or analyzing asset performance over time.

In contrast, the market price of an asset fluctuates based on supply and demand dynamics, and appraisal values can vary based on professional assessments, often influenced by current market conditions or specific evaluations of real estate. Liquidation value pertains to the amount that can be obtained if an asset is sold off quickly, which can differ significantly from the book value. Each of these alternatives examines value measurement in different contexts, but only the book value provides a consistent and standardized figure for accounting purposes on a balance sheet.