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

Tax deduction for interest paid or accrued within the taxable year with respect to mortgage indebtedness. Interest is deductible on mortgages secured by principal and second homes. A ...

Commissions received by a syndicator when real property is sold. The fees typically occur after the investors receive their initial investment plus the specified return. ...

Situation in which very few prospective buyers of real estate are rejected by lenders. This may be due to ample money supply, lower interest rates, and/or relaxed credit standards. See also ...

The number of units currently occupied in a facility, neighborhood, or city, stated as a percentage of total capacity. For example, a hotel has 80 rooms available for guests. Its average ...

Type of material or substance typically made for railings around the outdoor front patio and for both sides of the stairs in the front and rear of house. Other examples are chairs and ...

(1) Surrendering voluntarily or involuntarily ownership of property or an interest therein. (2) Court order to give up possession or the right to property such as in the case of an ...

Structure of prefabricated units. ...

Unimproved property. It has no utilities, sewers, streets, or structures and usually must be cleared. ...

Defect in the tax law that either may provide a loophole to minimize the tax payment or result in higher taxes than there should be. ...

Popular Real Estate Questions