1. What is Accumulated Depreciation?

Accumulated depreciation is the total amount of depreciation expense that has been recorded against an asset since it was put into service. It represents the reduction in value of a fixed asset over time due to wear and tear, obsolescence, or other factors.

2. How Does the Calculator Work?

The calculator uses the straight-line depreciation formula:

Where:

• Depreciation Rate — Annual depreciation rate (as decimal)
• Asset Cost — Original cost of the asset
• Time — Number of years asset has been in service

Explanation: This formula calculates the total depreciation over a given period using a constant depreciation rate.

3. Importance of Depreciation Calculation

Details: Accurate depreciation calculation is crucial for financial reporting, tax purposes, and understanding the true value of assets on a company's balance sheet.

4. Using the Calculator

Tips: Enter the annual depreciation rate as a decimal (e.g., 0.20 for 20%), the original cost of the asset, and the number of years the asset has been in use.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between depreciation expense and accumulated depreciation?
A: Depreciation expense is the amount recorded each period, while accumulated depreciation is the cumulative total of all depreciation expenses recorded against an asset.

Q2: How do I determine the depreciation rate?
A: The rate is typically 1 divided by the asset's useful life (e.g., 0.20 for a 5-year life).

Q3: Does this formula work for all depreciation methods?
A: This is specifically for straight-line depreciation. Other methods (declining balance, units of production) require different calculations.

Q4: What about salvage value?
A: This simplified formula doesn't account for salvage value. For more precise calculations, subtract salvage value from asset cost first.

Q5: How does accumulated depreciation appear on financial statements?
A: It's shown as a contra-asset account, reducing the gross amount of fixed assets on the balance sheet.