To illustrate, let's assume that at the beginning of the current year a company's asset account Equipment reports a cost of $70,000. From the time of purchase until the beginning of the year the related Accumulated Depreciation account has accumulated a credit balance of $45,000. During the current year the company debits Depreciation Expense for $10,000 and credits Accumulated Depreciation for $10,000. At the end of the current year the credit balance in Accumulated Depreciation will be $55,000.
By crediting the account Accumulated Depreciation instead of crediting the Equipment account, the balance sheet at the end of the year can easily report both the equipment's cost of $70,000 and its accumulated depreciation of $55,000. This is more informative than reporting only the net amount of $15,000 (which would likely be the case if the contra asset account Accumulated Depreciation was not used).
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