What is Book Value?

For an individual asset, book value is its original cost minus accumulated depreciation or amortization. For a business as a whole, book value is total assets minus total liabilities, which equals owner's equity.

Asset example

Equipment bought for $25,000 with $15,000 of accumulated depreciation has a book value of $10,000. If it sells for $12,000, the gain is $2,000.

Book value is not market value

Book value reflects historical cost and accounting conventions, not what something is worth today. A fully depreciated truck may still be valuable; a nearly new computer may be worth less than its book value. Real estate often has a market value far above its book value.

Book value vs tax basis

Book value on your financial statements can differ from adjusted tax basis because depreciation methods differ. When an asset is sold, the tax gain is calculated from adjusted basis, not book value. The IRS explains basis in Publication 551.

For the whole business

Lenders look at book equity when assessing leverage. Buyers usually value a small business on earnings, using measures such as EBITDA, rather than on book value, though book value of assets such as inventory and equipment can still matter in negotiations.

Keeping it accurate

Book value is only as good as the fixed asset register behind it. Removing disposed assets and recording depreciation regularly keeps it meaningful. See also how to read a balance sheet.

Related terms

• Amortization: Amortization spreads the cost of an intangible asset, or the repayment of a loan, over time.
• Assets: Assets are resources a business owns or controls that are expected to provide future economic benefit.
• Liabilities: Liabilities are amounts a business owes to others, such as suppliers, lenders, employees and tax authorities.
• Owner's Equity: Owner's equity is the owners' stake in the business: assets minus liabilities.

Browse more definitions in the small business glossary.