Accumulated depreciation

Accumulated Depreciation is a term used in accounting to describe the total amount of a tangible asset's cost that has been depreciated over time. It is an important concept in financial accounting and asset management.

Overview

Accumulated depreciation is the total depreciation of a company's fixed assets, such as buildings, machinery, and equipment, up to a specific date. It is a contra asset account – an account that offsets the balance of the associated account – appearing directly below the asset account to which it relates on the balance sheet.

Calculation

Accumulated depreciation is calculated by adding the depreciation expense of an asset for each year of the asset's useful life. The depreciation methods used can vary, including straight-line, declining balance, and units of production.

Impact on Financial Statements

Accumulated depreciation reduces the book value of assets on the balance sheet and is also used in the calculation of a company's net income on the income statement. It is subtracted from the original cost of the asset to arrive at the asset's book value or carrying value.

Importance

Accumulated depreciation is important for both financial reporting and tax purposes. It helps companies accurately report the value of their assets and calculate their depreciation expense for tax purposes. It also provides insight into a company's capital expenditure and how efficiently it uses its assets.

See Also

• Depreciation
• Balance sheet
• Income statement
• Financial accounting
• Asset management