How is accumulated depreciation recorded in the chart of accounts?

How is accumulated depreciation recorded in the chart of accounts?

• A. It is classified as a sub-account under the asset account.
• B. It is classified as a liability account.
• C. It is classified as an income account.
• D. It is classified as an expense account.

Answer: (A)

Accumulated depreciation is a contra-asset account. It tracks the total amount of depreciation charged against an asset over time and sits as a sub-account under the related asset (for example, Equipment or Buildings). This setup allows the balance sheet to show the asset at its original cost minus the accumulated depreciation, giving the net book value. When depreciation is recorded, you typically debit Depreciation Expense (an expense on the income statement) and credit Accumulated Depreciation (the contra-asset). The credit increases the accumulated depreciation, which reduces the asset’s net value on the balance sheet without creating a separate liability or income item. So, the best fit is that accumulated depreciation is kept as a sub-account under the asset category, reflecting its role as a contra-asset.

Accumulated depreciation is a contra-asset account. It tracks the total amount of depreciation charged against an asset over time and sits as a sub-account under the related asset (for example, Equipment or Buildings). This setup allows the balance sheet to show the asset at its original cost minus the accumulated depreciation, giving the net book value.

When depreciation is recorded, you typically debit Depreciation Expense (an expense on the income statement) and credit Accumulated Depreciation (the contra-asset). The credit increases the accumulated depreciation, which reduces the asset’s net value on the balance sheet without creating a separate liability or income item.

So, the best fit is that accumulated depreciation is kept as a sub-account under the asset category, reflecting its role as a contra-asset.