Accumulated Depreciation

Definition of "Accumulated Depreciation"

Sharon Dolezal real estate agent

Written by

Sharon Dolezalelite badge icon

Coldwell Banker

Any real estate owner is aware that assets depreciate over time. So exactly what is accumulated depreciation then? As depreciation happens to every asset, whether it is a three-story mansion or a couch. The accumulated depreciation definition explains how this type of depreciation calculates the asset’s depreciation up to a specific point in its life. Accumulated appreciation works to determine the contra asset account, or in other words, the natural balance that lowers the asset value. It is also referred to as the accrual of depreciation as it uses the accrual method of accounting for expenses and revenues.

How does Accumulated Depreciation work?

Any business that adheres to the generally accepted accounting principles (GAAP) respects the matching principle that demands matching each revenue in the same accounting period with its corresponding expense. The business expense is the capital asset’s value during every year through depreciation, but in that same period, those assets generate revenue while they are used. The expense and the revenue will match up and be added through adjusting journal entries.

Accumulated depreciation summarizes how much an asset depreciated up to a certain point. After each accounting period, the depreciation expense is added to the already existing accumulated depreciation in the books. The asset’s value that depreciated at the end of its useful life is its carrying value. When the asset is no longer useful, that value will match its salvage value, which is the revenue gained from the use of that asset. The carrying value is the asset’s original cost minus its accumulated depreciation.

Example of Accumulated Depreciation

Purchasing a piece of equipment for $11,000 with a useful life expectancy of 10 years and a salvage value of $1,000, the company splits the equipment’s cost for the following 10 years. The company will depreciate at an amount of $1,000 yearly until the value in the books for the asset is at $1,000. After each accounting period is over, the new value of depreciation is added to the one before. Each year the depreciation accumulates, and the accumulated depreciation grows by $1,000 every year for the following 10 years. At the end of the asset’s useful life expectancy, the accumulated depreciation will be $10,000, and its carrying value matches with its salvage value.

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Real Estate Terms

The company is not responsible to a third party if an account or financial instrument is dishonored by the debtor. The creditor's recourse is solely to the debtor's property. An example is ...

An insurance policy indemnifying a property owner up to the limits of the policy against fire or other hazard requiring the total destruction and removal of the structure. ...

Real property that is without any obligations, liens, or anything else against it. It is free and clear such as a house without mortgage. ...

Architectural style featuring a long low roof line with a continuous row of windows and a plain exterior. It is very open design with long horizontal lines rather than having small secluded ...

Legal action under eminent domain where the government takes ownership of privately held real estate for public use (parks or schools for example) irrespective of the owners wishes. The ...

Tax concept whereby income not actually received is considered to be constructively received by a taxpayer and thus must be reported. ...

Projecting what the total cost would be to construct a structure. Costs include material, labor, and lawyers' fees. ...

Municipal ordinance stating the distance from a curb or property line where the building of a structure is prohibited. Also states the distances from a boundary line where construction is ...

See clapboard. ...

Popular Real Estate Questions