Accumulated depreciation is which type of account?

• A. Contra-asset
• B. Current asset
• C. Liability
• D. Revenue

Answer: (A)

Accumulated depreciation is a contra-asset account. It serves to offset the carrying value of a fixed asset as depreciation accumulates over time. It has a credit balance, which is opposite to the normal debit balance of assets, and it increases when depreciation is recorded. Each period, you debit depreciation expense and credit accumulated depreciation, which lowers the asset’s net book value on the balance sheet. It’s not a current asset, liability, or revenue because it doesn’t itself represent cash, an obligation, or earned income; it simply reduces the value of the asset it pairs with. For example, if equipment cost 100,000 and accumulated depreciation is 40,000, the equipment’s net book value shown is 60,000.