Accumulated Depreciation
The total depreciation expense recognized on an asset since it was placed in service, shown as a contra asset on the balance sheet.
What is Accumulated Depreciation?
Accumulated depreciation is the cumulative total of all depreciation expense recognized on a fixed asset from the date it was placed in service up to the current balance sheet date. It is recorded as a contra asset account — carrying a credit balance — that reduces the gross cost of property, plant, and equipment (PP&E) to its net book value. Each period, new depreciation expense adds to the accumulated depreciation balance. When an asset is fully depreciated, its net book value equals its salvage value (or zero if no salvage value). Accumulated depreciation helps investors see both the original cost of assets and how much of their value has been expensed, providing insight into the age and remaining useful life of a company's asset base.
Example
A logistics company purchases a fleet of trucks for a total cost of $12 million, depreciating them straight-line over 8 years with no salvage value ($1.5M per year). After 5 years, accumulated depreciation is $7.5 million. The balance sheet shows gross PP&E of $12 million less accumulated depreciation of $7.5 million, for a net book value of $4.5 million. When an analyst sees that accumulated depreciation represents 63% of gross PP&E, it signals that the fleet is aging and will likely require significant capital expenditure for replacement in the coming years.