What is the relationship between accumulated depreciation and depreciation expense?

Modified on Tue, 19 Jun 2018 at 09:00 AM

Accumulated depreciation is the total amount a company depreciates its assets, and depreciation expense is the amount a company's assets are depreciated for a single period. Essentially, accumulated depreciation is the total amount of a company's cost that has been allocated to depreciation expense since the asset or assets have been put into use.

The accumulated depreciation account is an asset account on a company's balance sheet with a credit balance. It appears on the balance sheet as a reduction from the gross amount of fixed assets reported. The amount of accumulated depreciation for an asset or group of assets will increase over time, as depreciation expenses continue to be credited against the assets. When an asset is eventually sold or put out of use, the amount of the accumulated depreciation that is associated with that asset will be reversed, eliminating all record of the asset from a company's balance sheet.

Depreciation expense, on the other hand, is the allocated portion of the cost of a company's fixed assets that is appropriate for the period. Depreciation expense is recognized on the income statement as a non-cash expense that has reduced the company's net income. It is considered a non-cash expense because the recurring monthly depreciation entry does not involve a cash transaction. Because of this, the statement of cash flows prepared under the indirect method adds the depreciation expense back to calculate cash flow from operations.

For accounting purposes, the depreciation expense is debited and the accumulated depreciation is credited.

Source : Investopedia

Was this article helpful?

That’s Great!

Thank you for your feedback

Sorry! We couldn't be helpful

Thank you for your feedback

Let us know how can we improve this article!

Select atleast one of the reasons
CAPTCHA verification is required.

Feedback sent

We appreciate your effort and will try to fix the article