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What does Accumulated Depreciation tell us?

Author:
Harold Averkamp, CPA, MBA

Definition of Accumulated Depreciation

Accumulated depreciation reports the amount of depreciation that has been recorded from the time an asset was acquired until the date of the balance sheet.

What Accumulated Depreciation Tells Us

An asset’s accumulated depreciation is subtracted from the asset’s cost to indicate the asset’s book value. The book value indicates the maximum amount of future depreciation remaining.

Since depreciation is defined as the allocation of an asset’s cost based on the estimated useful life, the book value of the asset is not an indication of the asset’s market value. For example, a building in an excellent location may be increasing in value even though the accumulated depreciation is increasing and therefore the book value is decreasing.

The amount reported in the contra asset account Accumulated Depreciation merely reports the total amount of an asset’s cost that has been moved to the income statement in the form of depreciation expense since the asset was acquired.

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

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