Book value can refer to several different financial figures, while carrying value is used in business accounting and is differentiated from market value. In most contexts, book value and carrying value describe the same accounting concepts. In these cases, their difference lies primarily within the types of companies that use each one.
Book Value Vs. Carrying Value Definitions
Book value has three possible definitions. Most commonly, book value is the value of an asset as it appears on the balance sheet. This is calculated by subtracting the accumulated depreciation from the cost of the asset. It is an established accounting practice that an asset is held based on its original costs, even if the market value of the asset has changed considerably since its purchase.
Book value can also refer to the total net value of a company. This is an important investing figure, helping reveal whether stocks are under- or overpriced. A company’s book value is determined by the difference between total assets and the sum of liabilities and intangible assets, such as patents.
In either of the above two definitions, book value and carrying value are interchangeable. Their names derive from the fact that these are the values carried on a company’s books, making them independent of current economic or financial considerations.
Book value is used in one context in which it is not commonly synonymous with carrying value: the initial outlay for an investment asset. This is the price paid for a security or debt instrument, such as a stock or bond. When stocks are sold by an investor, for example, capital gains are determined based on the selling price minus the book value. However, even this is sometimes referred to as carrying value, most likely because of the two terms’ historical association.