Accumulated Depreciation
Accumulated depreciation is an account used to track the cumulative depreciation expense for a company’s assets. It is calculated by taking the accumulated depreciation expense for each asset and adding it to the depreciation expense for the period.
Formula for accumulated depreciation:
Accumulated depreciation = Total depreciation expense - Current depreciation expense
Explanation:
- Total depreciation expense: The total amount of depreciation expense that has been accumulated for all assets in the company’s fleet.
- Current depreciation expense: The depreciation expense for the period.
- Accumulated depreciation: The total amount of depreciation expense that has been accumulated for all assets in the company’s fleet.
Uses of accumulated depreciation:
- To calculate the current book value of an asset.
- To calculate the depreciation expense for a future period.
- To adjust the cost of an asset for inflation.
Example:
A company has a fleet of cars with a total cost of $100,000. The company depreciates the cars at a rate of 10% per year. After three years, the accumulated depreciation expense is $30,000. The current depreciation expense for the year is $10,000. Therefore, the accumulated depreciation expense is $30,000 – $10,000 = $20,000.
FAQs
What is the entry for accumulated depreciation?
The journal entry involves debiting the depreciation expense account and crediting the accumulated depreciation account.
Is accumulated depreciation debited or credited?
Accumulated depreciation is credited, as it reduces the book value of an asset.
What type of account is accumulated depreciation?
Accumulated depreciation is a contra asset account, meaning it offsets the value of a related asset.
How is accumulated depreciation shown on a balance sheet?
It appears as a deduction from the related assetโs value under the assets section of the balance sheet.
Is accumulated depreciation a liability or not?
No, accumulated depreciation is not a liability; it’s a contra asset account that reduces the value of assets.
