Accumulated Depreciation


DEFINITION of 'Accumulated Depreciation'

The cumulative depreciation of an asset up to a single point in its life. Regardless of the method used to calculate it, the depreciation of an asset during a single period is added to the previous period's accumulated depreciation to get the current accumulated depreciation.

An asset's carrying value on the balance sheet is the difference between its purchase price and accumulated depreciation.


Loading the player...

BREAKING DOWN 'Accumulated Depreciation'

A company buys an asset for $5,000 that has a five-year lifespan and zero salvage value. The company uses straight-line depreciation, and the asset depreciates at a rate of $1,000 per year.

In year one, depreciation will be $1,000, as will accumulated depreciation, and carrying value of the asset will be $4,000.

In year two, depreciation will be $1,000, accumulated depreciation will be $2,000 ($1,000 from the current year + $1,000 accumulated from previous years) and carrying value will be $3,000.

Each subsequent year will follow the same process.

  1. Amortization

    1. The paying off of debt in regular installments over a period ...
  2. Unit of Production Method

    A depreciation procedure used for property that is not in continuous ...
  3. Sum-Of-The-Years' Digits

    An accelerated method for calculating an asset's depreciation. ...
  4. Sinking Fund Method

    A technique for depreciating an asset in bookkeeping records ...
  5. Fully Depreciated Asset

    A property, plant, or piece of equipment which, for accounting ...
  6. Salvage Value

    The estimated value that an asset will realize upon its sale ...
Related Articles
  1. Active Trading

    An Introduction To Depreciation

    Companies make choices and assumptions in calculating depreciation, and you need to know how these affect the bottom line.
  2. Investing

    Understanding Accumulated Depreciation

    Depreciation is a rough approximation, in dollar terms, of the wear and tear on an asset. So the accumulated depreciation is the aggregate of the wear and tear on the asset from all prior time ...
  3. Personal Finance

    Breaking Down The Balance Sheet

    Knowing what the company's financial statements mean will help you to analyze your investments.
  4. Forex Education

    Depreciation: Straight-Line Vs. Double-Declining Methods

    Appreciate the different methods used to describe how book value is "used up".
  5. Markets

    Operating Cash Flow: Better Than Net Income?

    Differences between accrual accounting and cash flows show why net income is easier to manipulate.
  6. Investing Basics

    The Best Litmus Test Of A Company's Risk? The Acid Test

    The acid test measures a company’s short-term liquidity.
  7. Investing Basics

    How To Efficiently Read An Annual Report

    Annual reports are clearly prepared without any intent to deceive or mislead investors. Still, investors should read them with a dose of skepticism.
  8. Investing Basics

    Understanding Liquidity Risk

    Learn about the two types of liquidity risk: funding liquidity risk and market liquidity risk.
  9. Investing Basics

    Explaining Financial Statement Analysis

    Financial statement analysis is the process of reviewing a company’s statements to gain an understanding of its financial health.
  10. Investing Basics

    How Financial Statements Are Manipulated

    Financial statement manipulation is an ongoing problem, and investors who buy stocks or bonds should be aware of its signs and implications.
  1. How do you write off impaired assets from the financial statement?

    An accountant writes off an impaired asset by decreasing the book value of that asset on the company's balance sheet from ... Read Full Answer >>
  2. How is depreciation related to the carrying value of a tangible asset?

    Depreciation is related to the carrying value of a tangible asset in that the latter is the original cost of the tangible ... Read Full Answer >>
  3. Why does accumulated depreciation have a credit balance on the balance sheet?

    Accumulated depreciation is increased with a credit entry, although it is shown on the asset side of the balance sheet. Following ... Read Full Answer >>
  4. What would cause a decrease in accumulated depreciation?

    When a company's accumulated depreciation decreases, it is normally due to the sale of a long-term fixed asset or group of ... Read Full Answer >>
  5. What happens to accumulated depreciation when you sell an asset?

    When a company sells an asset, its total accumulated depreciation is reduced by the amount related to that asset. The accumulated ... Read Full Answer >>
  6. What is the relationship between accumulated depreciation and depreciation expense?

    Accumulated depreciation is the total amount a company depreciates its assets, and depreciation expense is the amount a company's ... Read Full Answer >>
  7. What is considered to be a good fixed asset turnover ratio?

    The fixed asset turnover ratio is a metric that measures sales to the value of fixed assets. It measures how well a company ... Read Full Answer >>
  8. How does accumulated depreciation affect net income?

    Accumulated depreciation does not directly affect net income but is instead the total amount of a company's depreciation ... Read Full Answer >>
  9. What is the tax impact of calculating depreciation?

    Depreciation, which is the decrease in the value of an asset or assets, reduces the amount of taxes paid in the form of depreciation ... Read Full Answer >>
  10. Does gross profit include depreciation or amortization?

    Gross profit (sometimes called "gross margin") represents a company's sales revenue minus its cost of goods sold – in other ... Read Full Answer >>
  11. What is the difference between amortization and depreciation?

    Because very few assets last forever, one of the main principles of accrual accounting requires that an asset's cost be proportionally ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  2. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  3. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
  4. Monetary Policy

    Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and ...
  5. Indemnity

    Indemnity is compensation for damages or loss. Indemnity in the legal sense may also refer to an exemption from liability ...
  6. Discount Bond

    A bond that is issued for less than its par (or face) value, or a bond currently trading for less than its par value in the ...
Trading Center