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Accumulated Depreciation: Definition and Meaning
Definition
Accumulated depreciation is the total depreciation recorded on a tangible long-term asset since it was placed in service. It reduces the asset’s net book value on the balance sheet.
Why It Matters
Accumulated depreciation helps show how much of an asset’s recorded cost has been allocated as depreciation expense over time. It is a contra-asset account, meaning it is presented as a reduction of the related asset’s cost.
For businesses with significant equipment, vehicles, machinery, or property, tracking accumulated depreciation supports accurate financial reporting and can inform replacement, financing, and asset-management discussions.
Example
A company purchases a truck for $50,000 and records $20,000 of accumulated depreciation over time. The truck’s net book value is $30,000 before considering other adjustments.
Related Terms
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