What is accumulated depreciation?
When a business buys equipment, vehicles or buildings, it spreads the cost over the asset's useful life through depreciation. Accumulated depreciation is the running total of all depreciation recorded on that asset to date. It is a contra-asset: it sits under fixed assets on the balance sheet and reduces their carrying amount.
Net book value = Cost − Accumulated depreciation
How it works
Each period you record: debit depreciation expense, credit accumulated depreciation. The asset's original cost stays unchanged in its own account, which keeps a clear record of what was paid.
Example
A delivery van costs $30,000, has a useful life of five years and a residual value of $5,000. Using straight-line depreciation:
- Annual depreciation = (30,000 − 5,000) ÷ 5 = $5,000
- After three years, accumulated depreciation = $15,000
- Net book value = 30,000 − 15,000 = $15,000
When an asset is sold or scrapped
Remove both the cost and its accumulated depreciation from the books. Any difference between the sale proceeds and net book value is a gain or loss on disposal.
Why it matters
- Shows how much of an asset's value has been used up.
- Helps plan replacements.
- Supports accurate book value](/glossary/book-value) and asset reporting under [IAS 16 Property, Plant and Equipment.