What Type of an Account Is an Accumulated Depreciation?

Understanding Accumulated Depreciation

Depreciation expense is the way in which accountants write off the wear and tear of an asset over its useful life. Accumulated depreciation is the account that tracks the cumulative amount of the amount written off.

Accrual Accounting

Accrual accounting is the process accountants set up to track accounting transactions that are not necessarily based on cash. As such, accrual accounting helps accountants track the value in accounts that are both cash and non-cash based. Depreciation is a non-cash transaction.

Methodology

The most common type of depreciation method is straight line depreciation. It divides the cost of the asset by the useful years in the asset's life. The answer is referred to as the depreciation expense.

Significance

As depreciation expense is written off from year to year, the value of accumulated depreciation increases. The purpose of the accumulated depreciation account is to maintain a record of the amount of the asset value that has been written off.

Contra Account

In accounting, any account which only exists due to another account, such as accumulated depreciation, is referred to as a contra account.

Impact

The impact of contra accounts on the financial statements is minimal. However, accumulated depreciation is used to track the book value of assets on the balance sheet.

References

• Investopedia: Accumulated Depreciation