What is Accumulated Depreciation and How is it Calculated?

Posted In | Finance | Accounting Software

Accumulated depreciation is the total amount of depreciation expense that has been charged against an asset since it was acquired. Depreciation is a method used in accounting to allocate the cost of an asset over its useful life. The accumulated depreciation account is a contra-asset account. It has a credit balance and is subtracted from the asset's original cost to determine its net book value or carrying value on the balance sheet.

 

 

Example of Accumulated Depreciation    

If a company purchased a piece of equipment for $1,000 and it had an expected life of 10 years, the company would depreciate the equipment by $100 per year for 10 years. The accumulated depreciation of the equipment would be $1,000 after 10 years. 
The equation for accumulated depreciation is:
Accumulated Depreciation = Depreciation Expense x Number of Years
In this example, the depreciation expense is $100 and the number of years is 10, so the accumulated depreciation is $1,000.

 

How Accumulated Depreciation is Calculated?    

The accumulated depreciation is calculated by subtracting the depreciation expense from the cost of the asset. For example, if the cost of the asset is $1,000 and the depreciation expense is $100, then the accumulated depreciation would be $900. If the cost of the asset is $1,000 and the depreciation expense is $200, then the accumulated depreciation would be $800. The accumulated depreciation is the total amount of depreciation that has been expensed on an asset since the asset was acquired.

 

How is Accumulated Depreciation Recorded?     

Accumulated depreciation is the total amount of depreciation that has been recorded on an asset since the asset was first put into service. Depreciation is recorded on the asset's balance sheet as a contra asset account, which reduces the asset's value. 

 

Is Accumulated Depreciation a Current Liability?    

Accumulated depreciation is not a current liability. It is a contra asset account that is used to offset the value of a company's assets. The reason why accumulated depreciation is not a current liability is because it does not represent a current obligation of the company. Rather, it is a historical record of the depreciation of the company's assets.

 

Why is Accumulated Depreciation Credited?    

Accumulated depreciation is credited because it is a contra asset account. This means that the balance of the account is the opposite of what is reported on the balance sheet.

 

Where does Accumulated Depreciation Go?    

Accumulated depreciation goes on the balance sheet as a contra asset.  This means that it is an asset, but its value is negative. The reason for this is that it represents the amount of value that has been used up from the original purchase price of the asset.

 

Is Accumulated Depreciation on the Balance Sheet or Income Statement?    

Accumulated depreciation is on the balance sheet just below the related capital asset line. It is is recorded as a contra asset that has a natural credit balance because it represents the amount of depreciation that has been allocated to an asset over its useful life.