What does Accumulated Depreciation tell us?

Accumulated Depreciation reports the amount of depreciation that has been taken from the time an asset was acquired until the date of the balance sheet. The cost of an asset minus its accumulated depreciation is the asset’s carry value or book value.

Since depreciation is an allocation of an asset’s cost based on the estimated useful life, you should not assume that the depreciation is an indicator of what’s occuring to the asset’s market value. For example, a building in an excellent location may be increasing in value even though depreciation is taken. The present market value might be three times the original cost and yet the accumulated depreciation is now equal to the asset’s cost—meaning its book value is $0.

The amount reported in Accumulated Depreciation merely reports the total amount of an asset’s cost that has been sent over to the income statement as Depreciation Expense since the asset was acquired.

Learn more about Depreciation.