Accumulated Depreciation

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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.

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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.

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