What Type of Account Is Accumulated Depreciation?

Accumulated depreciation refers to the total amount of depreciation expenses related to your business. Your business likely has multiple assets that appreciate or depreciate over time. By tracking changes in the value of your assets, you can get a clear view of what your business is worth. Here are a few common questions about accumulated depreciation. 

What Are Some Examples of Depreciating Assets? 

Each business has its own assets that appreciate and depreciate. Depending on the type of business you have, types of depreciating assets might include your equipment, fleet of vehicles, furniture, and/or technology. 

For example, if a restaurant buys a couch for customers to sit on, it will start to depreciate in value as soon as someone sits on it. Stains from spilled food, wear from people sitting on it, and general interior design trend shifts will decrease its resale value. This is no different from the couch in your living room at home. 

Conversely, some assets may increase in value, or appreciate. The most common example of this is real estate. A business might buy a property and pay it off over a decade then significantly profit from selling the space because the land value appreciated. 

What Type of Account Is Accumulated Depreciation?

You can find accumulated depreciation under the fixed assets column of the balance sheet. Even though depreciation is considered a loss in business, you still track it under your assets to get a clear value of what your company is worth. 

For example, if you spend $30,000 on a delivery van, you would record that amount under “fleet” in your balance sheet. After a year, the depreciation might be $2,000, meaning the true value of your fleet asset is only $28,000. 

Why Should You Track Depreciation?

Tracking depreciation gives you an accurate idea of what your company is worth at a given point in time. If you need to take out a loan, you can use the value of your business as collateral. If you want to sell your company, then you can value your assets accurately. 

Can You Control the Depreciation in Your Assets? 

There are some factors to depreciation that you cannot control. For example, cars almost always depreciate in value unless they are rare antiques. However, you can take some steps to slow the rate of depreciation. In the case of cars or trucks, this means performing regular maintenance, driving carefully, and avoiding accidents. These activities will help the resale or trade-in value when you need to upgrade. 

How Can You Track Deprecation?

You can track basic industry trends to understand what your assets are worth. Kelly Blue Book is a good tool for tracking a car’s value. You can also see what other pieces of equipment sell for online.

Some companies set up formulas for asset tracking. For example, they might reduce an asset’s value by 10% during the first month (because the item is no longer new) and then subtract a percent of the value each quarter. This makes researching accumulated depreciation easier, but it means it’s not always accurate. 

As a business owner, you want your accounting statements to be as accurate as possible to help you make sound financial decisions. Use a tool like Lendio’s software to track your expenses and invoices to get a clear view of your company’s finances.

[freeSignup type=‘simple’ title=’Bookkeeping not your jam? Outsource it to the professionals. Lendio provides professional bookkeeping services to take one more thing off your plate.’ button=’Learn More’ url=’https://my.sunriseapp.com/signup’]