Depreciation Is Debit Or Credit

Accumulated Depreciation

Total depreciation over an asset's life

What is Accumulated Depreciation?

Accumulated depreciation is the total corporeality of depreciation expense allocated to a specific asset since the asset was put into use. It is a contra-asset account – a negative nugget account that offsets the remainder in the asset account it is normally associated with.

Unlike a normal asset business relationship, a credit to a contra-asset account increases its value while a debit decreases its value. Whenever depreciation expense is recorded for an organization, the aforementioned amount is as well credited to the accumulated depreciation account, allowing the company to show both the toll of the asset and total-to-date depreciation of the asset. This too shows the asset'south net book value on the residuum sheet.

Financial analysts volition create a depreciation schedule when performing fiscal modeling to rail the total depreciation over an asset'south life.

Video Explanation of Accumulated Depreciation

Scout this brusk video to quickly understand the main concepts covered in this guide, including what accumulated depreciation is and how depreciation expenses are calculated.

Instance

XYZ Company purchased equipment on January 1, 2015 for $100,000. The equipment has a residual value of $twenty,000 and has an expected useful life of 8 years. On December 31, 2017, what is the remainder of the accumulated depreciation business relationship?

($100,000 – $20,000) / eight = $10,000 in depreciation expense per year

Accumulated Depreciation Example

Download the Gratis Template

Enter your name and email in the form below and download the costless template now!

Debiting Accumulated Depreciation

We credit the accumulated depreciation business relationship because, equally time passes, the visitor records the depreciation expense that is accumulated in the contra-asset business relationship. Withal, there are situations when the accumulated depreciation account is debited or eliminated. For example, let's say an asset has been used for 5 years and has an accumulated depreciation of $100,000 in total.

After the 5-year period, if the visitor were to sell the asset, the account would need to be zeroed out because the asset is not relevant to the company anymore. Therefore, there would be a credit to the asset account, a debit to the accumulated depreciation account, and a gain or loss depending on the off-white value of the nugget and the amount received.

Accumulated Acquittal/Depletion

Accumulated amortization and accumulated depletion piece of work in the same way as accumulated depreciation; they are all contra-asset accounts. The naming convention is simply different depending on the nature of the asset. For tangible assets such as property or constitute and equipment, it is referred to as depreciation.

For intangible assets such as patents, licenses, or trademarks, information technology is referred to as amortization, and for natural resources-related assets such equally mines or oil platforms, depletion is the official terminology. When amortization or depletion expense is recorded for the year, the respective accumulated contra-asset accounts are credited in order to business relationship for the expense.