What is accumulated depreciation?

Accumulated depreciation is the total depreciation expense recorded against an asset since acquisition, representing the portion of the asset's cost that has been expensed over its useful life. For professional service firms, accumulated depreciation reduces asset book value on the balance sheet and tracks how much of each asset's value has been consumed.

Key characteristics

• Total depreciation since acquisition

• Reduces asset book value

• Increases each period

• Contra asset account

• Equals zero for new assets

• Supports disposal calculations

Why it matters for professional service firms

Accumulated depreciation shows how much of an asset's value has been used up. Book value (cost minus accumulated depreciation) indicates the remaining value. Professional service firms should track accumulated depreciation by asset to understand book values, calculate disposal gains or losses, and inform replacement decisions.

Real-world example

Daniel's firm purchased computers for $45K with a useful life of 1 year. Annual depreciation: $15K. After year 2: accumulated depreciation $30K, book value $15K. When replaced in year 3, sold for $8K. Disposal calculation: proceeds $8K minus book value $15K equals $7K loss on disposal. Understanding accumulated depreciation enabled accurate disposal accounting and informed the timing of the replacement decision. Asset register now tracks accumulated depreciation for all assets.