Which statement is true about accumulated depreciation?

• A. It is a separate asset that increases with time
• B. It is a contra-asset account that reduces asset value on the balance sheet
• C. It affects cash flow directly
• D. It is recorded as revenue

Answer: (B)

Accumulated depreciation is a contra-asset account used to track how much of a long‑term asset’s cost has been allocated to depreciation over time. It isn’t an separate asset; instead it sits on the balance sheet with the related asset and reduces the asset’s net book value (cost minus accumulated depreciation). Each period, depreciation expense is recorded and accumulated depreciation increases, so the total depreciation grows as the asset ages. Since depreciation is a non-cash expense, it does not directly affect cash flow in the period (though it lowers net income and is added back when preparing cash flow from operations). This combination—being a contra-asset that reduces the asset’s carrying amount on the balance sheet— is why the statement is true.