Accumulated Depreciation Classification

A company depreciates equipment that it uses in operating activities.

Depreciation accounting entries play an important role in companies' financial reporting processes because fixed assets constitute big portions of corporate balance sheets. Accumulated depreciation amounts represent total depreciation entries that a company records on fixed assets.

Definitions

A company depreciates only fixed assets at the end of each month or quarter. Fixed assets include property, buildings and equipment and are resources that a firm intends to use for more than a year. Depreciating an asset means allocating its cost to several financial periods.

Financial Accounting

To record a fixed asset depreciation, an accountant credits the accumulated depreciation account and debits the depreciation expense account. Depreciation expense is a noncash item, meaning a company does not pay for it as it does in the case of salaries, rent or utilities. Depreciation expense also lowers a company's income tax expense.

Classification

An accountant reports accumulated depreciation amounts in the long-term assets section of the balance sheet. In accounting terminology, accumulated depreciation is a contra-asset account, meaning it reduces the value of fixed assets.

References

• Investopedia: Accumulated Depreciation
• Investopedia: Breaking Down the Balance Sheet