What is accumulated depreciation?

• A. Total depreciation that has been expensed to date for a fixed asset.
• B. An annual depreciation expense for the current year.
• C. A contra-revenue account.
• D. The current market value of the asset.

Answer: (A)

Accumulated depreciation is the total amount of depreciation expense that has been recorded for a fixed asset since it was placed in service. It’s a cumulative contra-asset, meaning it sits on the balance sheet alongside the asset to show how much of the asset’s cost has been expensed over time, reducing the asset’s book value.

This differs from the depreciation for just the current year, which is the amount expensed in the present period. It also isn’t a contra-revenue account, which would relate to reductions in revenue, nor is it the asset’s current market value. For example, if you buy equipment for 100,000 and record 10,000 of depreciation each year, after three years the accumulated depreciation would be 30,000, and the net book value would be 70,000 (100,000 minus 30,000).