What is Accumulated Depreciation?
Definition: Accumulated depreciation is the cumulative depreciation of an asset up to a single point in its life. Accumulated depreciation is a contra asset account, meaning its natural balance is a credit that reduces the overall asset value.
In Plain English: Accumulated depreciation is the total amount an asset has depreciated up to a point in time.
Example: Your shoe factory was built three months ago and has depreciated $3k each month. Your accumulated depreciation is $3k+$3k+$3k=$9k
Why Should You Care?
It’s important to understand the accumulated depreciation of your fixed assets in order to determine its carrying value, which is the difference between its historical/original cost and accumulated depreciation.