Market price

The market price concept has several possible meanings, depending upon the context in which it is used. The alternative definitions are:

  • Securities traded on an exchange. If debt or equity securities are traded on an exchange, their market price is considered to be the last price at which they were sold.
  • Securities traded over the counter. If debt or equity securities are traded in the over-the-counter market, their market price is considered to be a range, which is bounded by their current bid and ask prices.
  • Tangible goods. The market price of tangible goods is considered to be the price at which goods can be sold in arm's-length transactions between unrelated parties in an active market. A market price is not considered to have resulted from a forced sale, where the seller does not have sufficient time to contact all possible bidders or obtain a full range of bids.

Market price is of considerable interest from an accounting perspective, because it can be used to record the cost of certain transactions. It is also used as a comparison tool; if the recorded cost of an asset is higher than its market price, accounting rules may require that the recorded cost of the asset be reduced to its market price, or an adjusted version of the market price.

Similar Terms

Market price is also known as market value.

Related Courses

Fair Value Accounting