What Is Accumulated Depreciation?

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Accumulated depreciation is the total amount of depreciation a company took over the life of each asset. Generally, a company must recorded depreciation expense for each month, and then the depreciation expense goes into accumulated depreciation to track the total depreciation.

Types of Depreciation

  • Each month, companies track depreciation usually using either straight-line depreciation, double-declining balance depreciation or sum of years digit depreciations. The use of these methods depends on the company's practices on taking depreciation.

Journal Entry

  • To record depreciation, debit depreciation expense and credit accumulated depreciation each month on the general ledger. Depreciation expense is the income statement side of the journal entry while accumulated depreciation controls a balance sheet account.

Contra Account

  • Accumulated depreciation is a contra account to an asset. As a contra account, contra asset accounts maintain a credit balance while appearing as an asset on the balance sheet. Accumulated depreciation is a contra account to an equipment or depreciable property asset account. As a contra account, accumulated depreciation will decrease its associated account.

Balance Sheet Presentation

  • Accumulated depreciation appears directly under the depreciable asset. Then net the depreciable asset and the accumulated depreciation account to show the net equipment or depreciable asset on the balance sheet.

Total Depreciation

  • When reading a balance sheet, the accumulated depreciation is the total amount of depreciation deducted from a depreciable asset. Unlike depreciation expense, which only shows the depreciation for the period, accumulated depreciation will disclose all of the depreciation since the company acquired the depreciable asset.

References

  • Photo Credit Making a financial plan image by Allen Stoner from Fotolia.com
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