Accumulated depreciation where is it on the balance sheet

At the end of an asset's useful life , its carrying value on the balance sheet will match its salvage value. When recording depreciation in the general ledger , a company debits depreciation expense and credits accumulated depreciation.

Depreciation expense flows through to the income statement in the period it is recorded. Accumulated depreciation is presented on the balance sheet below the line for related capitalized assets. The accumulated depreciation balance increases over time, adding the amount of depreciation expense recorded in the current period. Straight-line depreciation expense is calculated by finding the depreciable base of the asset, which equals the difference between the historical cost of the asset and its salvage value.

The depreciable base is then divided by the asset's useful life in order to get the periodic depreciation expense. In this example, the historical cost of the asset is the purchase price, the salvage value is the value of the asset at the end of its useful life, also referred to as scrap value, and the useful life is the number of years the asset is expected to provide value.

The equipment is going to provide the company with value for the next 10 years, so the company expenses the cost of the equipment over the next 10 years.

That is, accumulated depreciation is a cumulative account. It is credited each year as the value of the asset is written off and remains on the books, reducing the net value of the asset, until the asset is disposed of or sold.

It is important to note that accumulated depreciation cannot be more than the asset's historical cost even if the asset is still in use after its estimated useful life.

Corporate Finance. Financial Statements. Your Privacy Rights. About us. Download link sent. Category Corporate Finance and Accounting. Introduction Accumulated depreciation is the total amount of the depreciation expenditure allocated to a particular asset since the asset was used.

Understanding Accumulated Depreciation Under Generally Accepted Accounting Principles GAAP , the matching principle requires that expenses must be attributed to the same accounting period within which the associated revenue is produced. Recording in Books While reporting depreciation, a company debits depreciation account in the general ledger and credits the cumulative depreciation account. Related Terms. Recent Terms.

CA Assisted Services. The annual entry, showing the credit to the accumulated depreciation account, is:. After 10 years, ABC retires the machine, and records the following entry to purge both the asset and its associated accumulated depreciation from its accounting records:. Fixed Asset Accounting.

How to Audit Fixed Assets. Accounting Books. Finance Books. Operations Books. Accumulated depreciation accounts are asset accounts with a credit balance known as a contra asset account. It is considered a contra asset account because it contains a negative balance that intended to offset the asset account with which it is paired, resulting in a net book value. Accumulated depreciation is not an asset because balances stored in the account are not something that will produce economic value to the business over multiple reporting periods.

Accumulated depreciation actually represents the amount of economic value that has been consumed in the past. NOTE: FreshBooks Support team members are not certified income tax or accounting professionals and cannot provide advice in these areas, outside of supporting questions about FreshBooks. If you need income tax advice please contact an accountant in your area. Depreciation is the method of accounting used to allocate the cost of a fixed asset over its useful life and is used to account for declines in value.