No, accumulated depreciation is not considered an asset account.
In fact, it’s quite the opposite. Accumulated depreciation is a contra asset account that devalues a business’ long-term assets.
Let’s explain what all of that means by defining both assets and accumulated depreciation in detail.
Table of Contents:
- What Is an Asset?
- What Is Accumulated Depreciation?
- Is Accumulated Depreciation an Asset?
- Automate Depreciation with Accounting Software
- Accumulated Depreciation FAQ
What Is an Asset?
Assets are economic resources a business owns which help generate revenue. They are recorded in the balance sheet, along with liabilities and owner’s equity.
Some of the most usual and common examples of assets in business include:
- Cash and cash equivalents
- PPE (property, plant, equipment)
- Patents and copyrights
What Is Accumulated Depreciation?
To understand accumulated depreciation, we first have to know what the term depreciation stands for.
In accounting, depreciation is a way of allocating the costs of a fixed asset over the time period that asset is useful to the business. By subtracting a portion from that full cost throughout the years as a depreciation expense, you gradually reduce an asset’s value until it’s no longer useful.
Now, accumulated depreciation is the total of all depreciation expenses that have been recorded for a particular asset, up to a certain point. It’s a contra-asset account in the balance sheet used to deduct the asset value.
This accumulated depreciation is purely an estimate, however, there’s no actual cash transaction going on. It’s only done for accounting purposes.
Common examples of entities that typically have accumulated depreciation include buildings, machinery, equipment, vehicles, and other long-term items which extend a one-year life period.
Is Accumulated Depreciation an Asset?
No, accumulated depreciation is not an asset.
For an account to be considered an asset, it needs to provide an economic benefit and help the business earn profit.
Accumulated depreciation does the complete opposite: it’s a contra asset account that reduces the value of an asset. It’s used to recognize the loss of usefulness of a long-term entity so that expenses are recognized at the time they occur.
Do you want to know more about the different types of accounts and how to record them? Check out our double-entry bookkeeping guide with practical examples.
Automate Depreciation with Accounting Software
Don’t want to manually calculate and record depreciation on Excel spreadsheets?
Then go digital with the cloud accounting platform Deskera! Automate all of your expenses, fixed assets, and every other financial transaction from a single easy-to-use dashboard.
With our Depreciation Schedule, you can set up asset depreciation within seconds.
Just enter the name of the fixed asset you want to depreciate, the method of depreciation, and the time interval you want to expense it in, and press Post.
The software automatically makes the correct journal entry for you, with the appropriate debit and credit balance.
Try it out yourself with our free trial. No credit card details required.
Accumulated Depreciation FAQ
#1. Where Does Accumulated Depreciation Appear on Financial Statements?
The accumulated depreciation appears under the property, plant, and equipment (PP&E) account which are long-term fixed assets that last over a year.
These are recorded on the statement of financial position, or commonly known as the balance sheet.
#2. What Is the Journal Entry for Accumulated Depreciation?
Accumulated depreciation is typically recorded as a credit entry, to offset its corresponding asset account. While depreciation expense is debited for that same amount.
If you want to learn how to make debit and credit entries for your small business accounting, head over to our journal entries guide.
#3. Is Accumulated Depreciation a Temporary Account?
No, accumulated depreciation is considered a permanent account, since it doesn’t close at the end of the accounting period.
Depreciation expense, on the other hand, is reported in the income statement and is closed to retained earnings at the end of the accounting cycle. Thus, it’s considered a temporary account.
#4. What’s the Difference Between Accumulated Depreciation and Amortization?
Accumulated depreciation deals with expensing tangible assets over their expected useful life. Whereas amortization spreads the cost of intangible items such as patents, trademarks, copyrights, that last more than a year.
And that's a wrap!
We hope this guide was helpful in understanding why accumulated depreciation is not an asset account, but a contra-asset one.
Here are some related readings you might be interested in: