Accumulated Depreciation on Your Business Balance Sheet

Depreciation expenses appear on the income statement during the recording period, while accumulated depreciation shows up on the balance sheet under related capitalised assets. You’ll note that the balance increases over time as depreciation expenses are added. The straight line method is most suited to assets that you know will be operating at relatively the same level over its useful life. If its accumulated depreciation is near equal to its original cost, the asset is probably near the end of its useful life.

It depreciates over 10 years, so you can take $2,500 in depreciation expense each year. Accumulated depreciation is the total amount of the depreciated asset at a specific point in time. To illustrate, here’s how the asset section of a balance sheet might look for the fictional company, Poochie’s Mobile Pet Grooming.

Is accumulated depreciation a fixed asset?

If the amount received is less than the book value, a loss is recorded. Businesses decide how to make investments and allocate funds based on accumulated depreciation since an asset’s accumulated depreciation affects its value. Assets may lose value over time as a result of technological updates, use and wear or other deteriorating factors. Thus, the cost incurred to obtain property and accumulated depreciation appears on the: equipment provides vital information about management policy and decision making. It also serves as the initial figure appearing on the balance sheet for any item classified in this manner. The buyer has voluntarily chosen to relinquish the specified amount of resources to gain the asset. After the date of acquisition, the reported balance will probably never again reflect fair value.

Following is a continuation of our interview with Robert A. Vallejo, partner with the accounting firm PricewaterhouseCoopers. Harold Averkamp has worked as a university accounting instructor, accountant, and consultant for more than 25 years. This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post.

Is the cost of depreciation an asset or a liability?

Although it is reported on the balance sheet under the asset section, accumulated depreciation reduces the total value of assets recognized on the financial statement since assets are natural debit accounts. Assets depreciate under this accounting system twice as quickly as under the traditional declining balance method.