Cost Method

Method of accounting by a parent company for investments in subsidiary companies. The parent maintains the investment in subsidiary account at its cost, not recognizing periodically its share of subsidiary income or loss. This method of accounting is used when one company owns less than 20% of the outstanding voting common stock of another company. It could be used instead of the Equity Method if 20%-50% of voting common stock is owned but there is a lack of effective control (significant influence).