Book value is a financial term that refers to the value of an asset as recorded on the balance sheet of a company. It is calculated by subtracting the accumulated depreciation from the original cost of an asset. The book value is also known as the carrying value or net book value.
In accounting, an asset's book value is considered the value of the asset for financial reporting purposes, as opposed to its market value, which is the value of the asset based on its current market price. The book value of an asset is important because it provides a snapshot of the financial position of a company and can be used to calculate various financial ratios and metrics, such as the price-to-book ratio.
For example, if a company purchases a piece of machinery for $100,000 and accumulates $20,000 in depreciation over the life of the asset, the book value of the asset would be $80,000 ($100,000 - $20,000). The book value of an asset is considered a conservative estimate of its value, as it does not take into account market conditions or other factors that could affect its value.