How is accumulated depreciation classified on the balance sheet?

• A. It is classified as a liability account.
• B. It is classified as an expense account.
• C. It is classified as an asset account.
• D. It is classified as a contra asset account.

Answer: (D)

Accumulated depreciation is a contra asset account. It represents the total depreciation charged against fixed assets since they were acquired and is used to reduce the asset’s carrying amount on the balance sheet. It typically has a credit balance, opposite to the normal debit balance of asset accounts. On the balance sheet you see the asset at its cost, with accumulated depreciation shown separately to subtract from that cost and reveal the net book value (for example, equipment costing 100,000 with 30,000 of accumulated depreciation leaves a net value of 70,000). Depreciation expense itself appears on the income statement, not on the balance sheet. It isn’t a liability, and it isn’t an ordinary asset because it does not represent future economic benefits returned to the company; it represents the wear and tear of assets over time.