Why is accumulated depreciation a credit balance?

Accumulated depreciation is the cumulative depreciation of an asset that has been recorded. 

Fixed assets like property, plant, and equipment are long-term assets. Instead of recording the cost of the asset in the year they’re purchased, the asset is depreciated.  

Depreciation expenses a portion of the cost of the asset in the year it was purchased and each year for the rest of the asset’s useful life. Depreciation allows a company to spread out the cost of an asset over its useful life so that revenue can be earned from the asset. Depreciation prevents a significant cost from being recorded in the year the asset was purchased. 

Accumulated depreciation is the total amount of depreciation expense that has been recorded so far for the asset. In other words, it’s a running total of the depreciation expense that has been recorded over the years.  

Each year, the depreciation expense account is debited, expensing a portion of the asset for that year, and the accumulated depreciation account is credited for the same amount. Over the years, accumulated depreciation increases as depreciation expense is charged against the value of the fixed asset. 

When an asset is retired or sold, the total amount of the accumulated depreciation associated with that asset is reversed, completely removing the record of the asset from a company’s books.

Source: Read Full Article