What is Accumulated Depreciation?
Accumulated Depreciation is simply the total of all the depreciation charges for an asset since it was purchased or first brought into use. The accumulated depreciation account is a balance sheet account and has a credit balance.
For example, if an asset has a cost 10,000 and is depreciated over 5 years, then the annual depreciation charge is 10,000 / 5 = 2,000 per year. This amount is charged to the profit and loss account each year.
After 3 years the total depreciation charge = accumulated depreciation = 3 x 2,000 = 6,000. This link between depreciation and accumulative depreciation is represented in the diagram below.
The cumulative depreciation can also used to determine the net book value of the asset.
Using the example above, the net book value is given by the cost less the cumulative depreciation = 10,000 – 6,000 = 4,000.
For further information on depreciation see the Wikipedia definition.
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About the Author
Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years in all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.