Accumulated depreciation

Accumulated depreciation is the cumulative amount of depreciation expense that has been charged against a fixed asset. This information is stored in a contra asset account, which effectively reduces the balance of the fixed asset account with which it is paired. When there is a large amount of accumulated depreciation associated with a fixed asset, this indicates that an entity has owned the asset for a substantial period of time.

For example, a company buys a fixed asset for $20,000 and depreciates it on a straight-line basis on the assumption that the asset has a useful life of 20 years. After five years, a total of $5,000 of depreciation expense has been recognized, which is the balance in the accumulated depreciation account for that asset.

When a fixed asset is sold or scrapped, the associated amount of accumulated depreciation is removed from the balance sheet, along with any remaining associated amount in the fixed asset account.

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