IS ACCUMULATED DEPRECIATION AN ASSET OR LIABILITY

Post a Comment

Accumulated depreciation is the cumulative balance of all previous depreciation expenses that have been charged on an asset.

The question is this:

Is accumulated depreciation an asset or liability?

Accumulated depreciation is not an asset or a liability. It is actually a contra account.

A contra account is an account used to reduce the balance of another related account.

Contra accounts often have a normal balance opposite to the related account because they are meant to reduce the value of a related account.

In other words, if the related account has a normal debit balance, its contra account will have a normal credit balance, and vice versa.

Why is accumulated depreciation not an asset?

An asset is an economic resource which is expected to provide future economic benefits to the business.

Accumulated depreciation is not an asset because it does not provide future economic benefits to the business. 

The balance of accumulated depreciation represents the economic value that has already been consumed in the past by the business, not future economic benefits.

Another reason why accumulated depreciation is not an asset is that it has a normal credit balance, which runs contrary to the normal debit balance that assets typically have.

Always keep in mind that an asset typically has a debit balance.

Why is accumulated depreciation not a liability?

A liability is a debt or obligation that a business entity owed to a third party.

As the balance in its account is not owing to any third parties, accumulated depreciation is not a liability.

Accumulated depreciation is only used to reduce the balance of an asset.

Accumulated depreciation does not represent any debt or obligations to third parties, thus even if it has a credit balance similar to liabilities, it is not a liability.

Why is accumulated depreciation a contra account?

Accumulated depreciation is considered a contra account because it is subtract from the balance of an asset account to get the asset's net book value.

A contra-account is an account used to reduce the balance of another related account and this is exactly what accumulated depreciation does.

Accumulated depreciation reduces the balance of the account with which it is paired.

Why is accumulated depreciation credited?

Accumulated depreciation is credited because it is a contra account.

A contra account usually has a normal balance opposite to the related account.

Since accumulated depreciation is the contra account for the asset account, and since the asset usually has a normal debit balance, accumulated depreciation is usually credited to show that it is reducing the balance of the asset account.

Help us grow our readership by sharing this post

Related Posts

Post a Comment

Subscribe Our Newsletter