Last reviewed: July 2026.
Accumulated depreciation is the cumulative depreciation recognised on an asset from the date it became available for use up to the reporting date. It is a contra-asset account: it reduces the asset’s gross carrying amount to the net carrying amount presented for property, plant and equipment.
This spoke guide focuses on the accumulated-depreciation ledger, journal entries, carrying-amount presentation, roll-forward and reconciliation. For depreciation methods, useful life, residual value, components, estimate changes, impairment and revaluation principles, use the depreciation accounting hub.
Accumulated depreciation versus depreciation expense
| Feature | Depreciation expense | Accumulated depreciation |
|---|---|---|
| Meaning | Current-period allocation | Cumulative balance to date |
| Normal balance | Debit | Credit |
| Presentation | Profit or loss, or sometimes another asset’s cost | Deducted from the related PPE class |
| Period covered | One reporting period | All periods since depreciation began, adjusted for disposals and other movements |
An annual charge of $12,000 increases current-period depreciation expense by $12,000 and increases accumulated depreciation by the same amount. The gross asset account normally remains unchanged unless an addition, disposal, revaluation or other adjustment affects it.
Basic journal entry
| Account | Debit | Credit |
|---|---|---|
| Depreciation expense | $12,000 | |
| Accumulated depreciation | $12,000 |
The entry does not create a cash payment, liability or replacement fund. It records the period’s allocation and updates the cumulative contra-asset balance.
Carrying amount presentation
Carrying amount = Gross carrying amount − Accumulated depreciation − Accumulated impairment
If equipment has a gross cost of $100,000, accumulated depreciation of $36,000 and no accumulated impairment, its carrying amount is $64,000. Carrying amount is an accounting measurement and is not automatically equal to market value.
Accumulated depreciation roll-forward
A useful reconciliation is:
Closing accumulated depreciation = Opening balance + Current-period charge − Accumulated depreciation removed on disposals ± Revaluation or other permitted adjustments
The exact line items depend on the entity’s transactions and presentation. Every movement should be traceable to the fixed asset register and general ledger.
Worked roll-forward example
An equipment class has the following information:
| Movement | Accumulated depreciation |
|---|---|
| Opening balance | $140,000 |
| Add current-year depreciation | $38,000 |
| Less balance relating to disposed asset | ($24,000) |
| Closing balance | $154,000 |
The closing ledger balance should equal the total accumulated depreciation in the detailed asset register for the same equipment class.
Ledger logic for a disposal
When an asset is disposed of, accumulated depreciation relating to that exact asset is removed. For an asset costing $50,000 with accumulated depreciation of $35,000:
Debit: Accumulated depreciation $35,000
Credit: Disposal account or the relevant compound disposal journal $35,000
This debit does not reverse prior depreciation expense. It removes the cumulative contra-asset balance because the related asset is no longer recognised. The fixed asset disposal entries guide shows the complete journal sequence.
Accumulated depreciation and impairment
Accumulated depreciation and accumulated impairment are different balances. Depreciation allocates depreciable amount over useful life; impairment records a reduction when carrying amount exceeds recoverable amount.
After an impairment loss, future depreciation is based on the revised carrying amount, remaining useful life and residual value. The register should preserve separate movement information so depreciation and impairment are not confused.
Accumulated depreciation after revaluation
When an asset is revalued, the related accumulated depreciation is treated in accordance with the revaluation mechanics applied under IAS 16. Depending on the method used, it may be eliminated against the gross carrying amount or restated consistently with the change in gross amount.
The revaluation working paper should reconcile the pre-revaluation gross amount, accumulated depreciation, net carrying amount, revised value and resulting surplus or loss. Future depreciation is based on the revalued depreciable amount.
Fully depreciated assets still in use
If an asset remains in use after its carrying amount reaches its residual value or zero, the gross amount and accumulated depreciation normally remain in the records until derecognition. No additional depreciation should reduce carrying amount below the applicable residual value.
A growing balance of fully depreciated assets still in service may indicate that useful lives, residual values or replacement assumptions need review. That review affects future estimates; it does not automatically permit a retrospective catch-up adjustment.
Why “provision for depreciation” can mislead
The phrase “provision for depreciation” appears in older bookkeeping material, but accumulated depreciation is not a provision for uncertain expenditure and is not a liability. It does not represent cash reserved to replace the asset.
Using the term accumulated depreciation makes the account’s nature and presentation clearer.
Financial-statement presentation and disclosure
The statement of financial position may present PPE at a net carrying amount, while the notes disclose gross carrying amount and accumulated depreciation and impairment. The notes generally include a movement reconciliation for each material class.
The register and ledger should support:
- opening gross amount and accumulated depreciation;
- additions and assets becoming available for use;
- current-period depreciation;
- disposals and accumulated depreciation removed;
- impairment and reversals where applicable;
- revaluations and transfers between classes;
- closing gross and accumulated balances.
Monthly close reconciliation
- Agree opening balances to the prior-period closing ledger and asset register.
- Review additions and confirm in-service dates.
- Run or calculate depreciation using approved master data.
- Investigate manual journals and unusual movements.
- Remove accumulated depreciation relating to disposals.
- Agree class totals in the register to the general ledger.
- Recalculate selected assets and review exceptions.
- Document and approve the reconciliation.
Exception reports worth reviewing
- assets with cost but no accumulated depreciation;
- negative accumulated depreciation or negative carrying amounts;
- depreciation continuing after disposal;
- disposed assets still included in the register;
- fully depreciated assets with new charges;
- assets without useful lives, methods or in-service dates;
- large manual adjustments or unexplained class-level differences.
Common errors
- crediting the asset cost account for the normal periodic charge;
- treating accumulated depreciation as cash or a liability;
- failing to remove the balance relating to a disposed asset;
- combining depreciation and impairment without a clear reconciliation;
- allowing accumulated depreciation to exceed the depreciable amount;
- posting a class total that does not agree with individual asset records;
- using tax depreciation balances as the financial-reporting ledger without assessment.
Related Accounting Support guides
- Depreciation accounting under IAS 16
- Applying depreciation methods consistently
- Fixed asset disposal journal entries
- Fixed asset register and general ledger reconciliation
Official and technical references
- IFRS Foundation: IAS 16 Property, Plant and Equipment
- ACCA: Property, plant and equipment—measurement and depreciation
Practical takeaway
Accumulated depreciation is a cumulative contra-asset balance—not a cash reserve, liability or current-period expense. A reliable balance must reconcile opening amounts, current charges, disposals, revaluations and closing asset-register details to the general ledger.