What Does the Accumulated Depreciation Amount Represent?

Assets are the items a company purchases and uses to generate revenues. Accounting rules are very specific about how a company classifies and reports information relating to these items. Accumulated depreciation is a particular number relating to assets.

Defined

Companies record asset purchases as a debit in their accounting ledger. However, the book value of the asset does not remain the same. Accumulated depreciation is the amount a company expenses each month to reduce the asset's book value.

Features

Depreciation expense has a few different forms. For example, a common depreciation method is straight line, where a company expenses a specific amount each month. Another example is the units produced. As the company produces so many units each month, the company will lower the asset value on the books.

Purpose

Assets wind up on the company's balance sheet, which represents the economic wealth created by the company. However, the book value of assets does not usually remain the same, requiring a revaluing of these items. Accumulated depreciation satisfies this represents the use of the asset.

References

• Business Dictionary: Accumulated Depreciation
• Accounting Coach: Depreciation