carrying amount

Buy a new car for 30,000 and, three years later, ask 'what is it worth on my books?'. Accounting does not magically re-price it to whatever a buyer might pay today. Instead it starts from the 30,000 you paid and subtracts the wear you have recorded year by year. The figure left over — the number the asset is 'carried' at on your records — is its carrying amount.

Carrying amount is the value at which an asset (or liability) is recorded on the balance sheet after all relevant adjustments. For a depreciable asset it equals original cost minus accumulated depreciation: a 30,000 machine after 12,000 of accumulated depreciation has a carrying amount of 18,000. For receivables it is the amount owed minus an allowance for amounts unlikely to be collected; for an impaired asset it is the written-down figure. The same idea is very often called book value or net book value — three names for the recorded amount.

Carrying amount matters because it, not market price, is what the balance sheet actually totals up — so when you read 'total assets', you are reading a sum of carrying amounts. The crucial caveat: carrying amount is usually not market value. A building carried at 200,000 might sell for 500,000, or a piece of obsolete equipment carried at 50,000 might fetch almost nothing. Carrying amount reflects accounting history and rules (mostly cost less depreciation), not today's selling price, and confusing the two is one of the most common mistakes beginners make when reading a balance sheet.