What is accumulated depreciation?

What is accumulated depreciation?

• A. The initial cost of acquiring an asset.
• B. The amount of money saved to purchase new assets.
• C. The total amount of depreciation expense allocated for an asset since it was put into use.
• D. The total value of all assets in a business.

Answer: (C)

Accumulated depreciation is the total amount of depreciation expense that has been allocated to an asset since it started being used. It’s a contra-asset account on the balance sheet, so it sits with the asset but reduces its book value over time. Each period, depreciation expense increases this total, reflecting wear, obsolescence, and aging. The asset’s net book value equals its original cost minus accumulated depreciation. For example, if a machine costs 100,000 and you record 20,000 of depreciation each year, the accumulated depreciation after five years would be 100,000, and the net book value would be zero (assuming no salvage value). This isn’t the asset’s initial cost, nor cash saved to buy new assets, nor the total value of all assets in the business.

Accumulated depreciation is the total amount of depreciation expense that has been allocated to an asset since it started being used. It’s a contra-asset account on the balance sheet, so it sits with the asset but reduces its book value over time. Each period, depreciation expense increases this total, reflecting wear, obsolescence, and aging. The asset’s net book value equals its original cost minus accumulated depreciation. For example, if a machine costs 100,000 and you record 20,000 of depreciation each year, the accumulated depreciation after five years would be 100,000, and the net book value would be zero (assuming no salvage value). This isn’t the asset’s initial cost, nor cash saved to buy new assets, nor the total value of all assets in the business.