What is Accumulated Depreciation

Accumulated Depreciation:-

It is the total of Depreciation Expense already charged to expense in the previous accounting periods.

The closing balance of Accumulated Depreciation or Allowance For Accumulated Depreciation is calculated by preparing Accumulated Depreciation T Account. For the 1^st year of Fixed Assets / Non Current Assets, the Accumulated Depreciation during Current Accounting Period having the same amount as the Depreciation Expense. After that, previous years’ depreciation is added to opening balance and closing balance of Accumulated Depreciation is deducted from relevant Fixed Assets’ closing balance that is why Accumulated Depreciation is a Contra Asset Account.

Accumulated Depreciation Journal Entry

When Depreciation on Fixed Asset is charged, then Depreciation Expense is Debited and Accumulated Depreciation is credited. Suppose, Machinery Costing Rs. 11000 and Residual Value 1000, is charged at 10% Per Annum by applying Straight Line Method, then Depreciation Expense and Accumulated Depreciation for the Current Year is shown in the form of An Accounting Journal Entry in the Book of Company as shown below:

         Depreciation Expense a/c - Machinery 1000

                                                Accumulated Depreciation a/c - Machinery 1000

(Depreciation is Charged on Machinery at 10% Per Annum)

Here, Depreciation is calculated as Cost - Residual Value = Depreciable Cost = 10000

 Depreciation Expense a/c For the Year:-

Depreciable Cost X Depreciation Rate 10000 X 10% X 12/12 = 1000

Important Question That, “Is Accumulated Depreciation An Asset”?

No, because Accumulated Depreciation is the reversal of An Asset, so it s a Contra Asset account which is deducted from the closing balance of relevant Fixed Assets / Non Current Assets on Balance Sheet to find the Book Value of Fixed Assets while Assets provides future probable benefits and it is a resource for the business and continue to use in the business unless it is sold out or exchange with other similar Asset.

So, it is very easy to calculate Accumulated Depreciation and the ending balance is transferred to Balance Sheet and where it is deducted from relevant Fixed Assets Account Balances.