In other words, accumulated depreciation is a contra-asset account, meaning it offsets the value of the asset that it is depreciating. As a result, accumulated depreciation is a negative balance reported on the balance sheet under the long-term assets section.

What are examples of contra asset accounts?

Types of contra asset accounts

• Accumulated depreciation.
• Accumulated depletion.
• Obsolete inventory reserves.
• Allowance for doubtful accounts.
• Trade accounts receivable.
• Discount on notes receivable.

What is the purpose of a contra asset account?

A contra asset is a negative asset account that offsets the asset account with which it is paired. The purpose of a contra asset account is to store a reserve that reduces the balance in the paired account.

What is the meaning of contra asset account?

What is a Contra Asset Account? In bookkeeping, a contra asset account is an asset account in which the natural balance of the account will either be a zero or a credit (negative) balance. The account offsets the balance in the respective asset account that it is paired with on the balance sheet.

Why is accumulated depreciation considered a contra asset?

December 24, 2018/. Accumulated depreciation is the grand total of all depreciation expense that has been recognized to date on a fixed asset. As such, it is considered a contra asset account, which means that it contains a negative balance that is intended to offset the asset account with which it is paired, resulting in a net book value.

How does accumulated depreciation work in real estate?

Accumulated depreciation is the total amount of depreciation expense allocated to a specific asset since the asset was put into use. It is a contra-asset account – a negative asset account that offsets the balance in the asset account it is normally associated with. Unlike a normal asset account,…

When does accumulated depreciation need to be zeroed out?

For example, let’s say an asset has been used for 5 years and has an accumulated depreciation of $100,000 in total. After the 5-year period, if the company were to sell the asset, the account would need to be zeroed out because the asset is not relevant to the company anymore.

How is depreciation expense reported on a balance sheet?

Depreciation expenses, on the other hand, are the allocated portion of the cost of a company’s fixed assets that are appropriate for the period. For accounting purposes, the depreciation expense is debited, and the accumulated depreciation is credited. However, the fixed asset is reported on the balance sheet at its original cost.