Which best characterizes accumulated depreciation?

• A. It represents market value today
• B. It represents cash paid
• C. Cumulative depreciation charged against an asset over time
• D. Future depreciation expense

Answer: (C)

Accumulated depreciation is the total amount of depreciation expense that has been charged against an asset since it was placed in service. It sits on the balance sheet as a contra-asset, meaning it reduces the asset’s book value over time. This is different from market value (which reflects current selling price) and from cash paid (depreciation is a noncash expense that spreads the cost over the asset’s useful life). It’s also not future depreciation expense, which will be recorded in upcoming periods. By accumulating depreciation, the company shows how much of the asset’s cost has already been allocated to expense. For example, if a machine purchased for $50,000 is depreciated $10,000 each year, after three years accumulated depreciation is $30,000 and the net book value is $20,000.