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Difference Between Accumulated Depreciation and Depreciation Expense

Financial reporting and taxation are major components for businesses, whether small or large. Keeping track of income as well as expenses is hence not a choice but is a mandatory requirement in any business. The reduction of the value of an asset over time, commonly referred to as depreciation, is among the expenses that are incurred in the running of a business, regardless of the value of assets. It is hence important to differentiate between accumulated depreciation and depreciation expense. 

 

What is Accumulated Depreciation?

This is the total depreciation incurred in an asset. It is deducted from the original cost of an asset and is a negative balance on the balance sheet. It is vital in the calculation of the taxable gain in any sale. 

 

What is Depreciation Expense?

This is the amount of the cost of an asset that is allocated and reported at the end of each reporting period. It is calculated by subtracting the value an asset is likely to retain when totally depleted from the value of the asset at time of acquisition, and then dividing the result by the asset life span. It is reported in the income statement, and is useful for taxation purposes, as it decreases the taxable income in a business. 

 

Similarities between Accumulated Depreciation and Depreciation Expense

  • Both are depreciation expenses
  • Both are useful for taxation purposes

 

Differences between Accumulated Depreciation and Depreciation Expense

  1. Definition

Accumulated depreciation is the total depreciation incurred in an asset. On the other hand, depreciated expense is the amount of the cost of an asset that is allocated and reported at the end of each reporting period. 

  1. Reporting in the books of accounts

While accumulated depreciation is reported in the balance sheet, depreciation expense is reported in the income statement. 

  1. Debit/Credit

Accumulated depreciation results in a credit. On the other hand, the balance in depreciation expense results in a debit.  

  1. Computation

Accumulated depreciation is deducted from the original cost of an asset. On the other hand, depreciation expense is calculated by subtracting the value an asset is likely to retain when totally depleted from the value of the asset at time of acquisition, and then dividing the result by the asset life span. 

Accumulated Depreciation vs. Depreciation Expense: Comparison Table

 

Summary of Accumulated Depreciation vs. Depreciation Expense

Accumulated depreciation is the total depreciation incurred in an asset. On the other hand, depreciated expense is the amount of the cost of an asset that is allocated and reported at the end of each reporting period. It is important to consult with a certified public accountant in the preparation of books of accounts for effective reporting. 

 

Tabitha Njogu

Tabitha graduated from Jomo Kenyatta University of Agriculture and Technology with a Bachelor’s Degree in Commerce, whereby she specialized in Finance. She has had the pleasure of working with various organizations and garnered expertise in business management, business administration, accounting, finance operations, and digital marketing.

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[0]Image credit: https://upload.wikimedia.org/wikipedia/commons/1/12/वित्तिय_विवरण_पत्र.jpg

[1]Image credit: https://www.flickr.com/photos/sampjb/7690684838

[2]Epstein Lita. Wiley Pathways Small Business Accounting- Small Business Resource Center. John Wiley & Sons Publishers, 2008.  https://books.google.co.ke/books?id=8X33zc-2fXoC&pg=PA119&dq=Difference+between+Accumulated+Depreciation+and+Depreciation+Expense&hl=en&sa=X&ved=0ahUKEwievoqN8PLhAhXQx4UKHR6YAvoQ6AEITzAG#v=onepage&q=Difference%20between%20Accumulated%20Depreciation%20and%20Depreciation%20Expense&f=false

[3]Boyd K & Welytok J. Accounting All-in-One For Dummies. John Wiley & Sons Publishers, 2014. https://books.google.co.ke/books?id=-QvtAgAAQBAJ&printsec=frontcover&dq=Difference+between+Accumulated+Depreciation+and+Depreciation+Expense&hl=en&sa=X&ved=0ahUKEwievoqN8PLhAhXQx4UKHR6YAvoQ6AEIRzAF#v=onepage&q=Difference%20between%20Accumulated%20Depreciation%20and%20Depreciation%20Expense&f=false

[4]Libman A & Feldman M. Crash Course in Accounting and Financial Statement Analysis. John Wiley & Sons Publishers, 2011.  https://books.google.co.ke/books?id=LlKM2JWZQq8C&printsec=frontcover&dq=Difference+between+Accumulated+Depreciation+and+Depreciation+Expense&hl=en&sa=X&ved=0ahUKEwievoqN8PLhAhXQx4UKHR6YAvoQ6AEILDAB#v=onepage&q=Difference%20between%20Accumulated%20Depreciation%20and%20Depreciation%20Expense&f=false

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