What Is Accumulated Depreciation?
The running total of depreciation, and how it appears on the balance sheet.
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| Type of account | Contra asset |
|---|---|
| Normal balance | Credit |
| Topic | Financial accounting · Non-current assets |
Accumulated depreciation in plain English
Each year’s depreciation is added to a running total instead of reducing the asset’s cost directly. That keeps the original cost visible and shows how much has been used up so far.
Worked example
Equipment costing 12,000 is depreciated by 2,000 a year. The yearly entry is: debit Depreciation expense 2,000, credit Accumulated depreciation 2,000.
| Balance sheet extract after 2 years | Amount |
|---|---|
| Equipment at cost | 12,000 |
| Less: accumulated depreciation (2 × 2,000) | (4,000) |
| Book value | 8,000 |
- Treating it as an expense. The yearly charge is the expense. The accumulated amount is a balance sheet deduction.
- Showing it as a liability. It is a contra asset, a deduction from an asset.
Frequently asked questions
Is accumulated depreciation an asset or a liability?
Neither. It is a contra asset, which reduces the carrying amount of the related asset.
Why does it have a credit balance?
Because it reduces an asset, and a decrease in an asset is recorded as a credit.
What happens to it when the asset is sold?
The asset’s cost and its accumulated depreciation are both removed from the books, and the difference between proceeds and book value is the gain or loss.
Keep learning
This page is for general learning. Accounting rules vary by country and standard.