Which statement about accumulated depreciation is correct?

• A. It is a contra-asset account that reduces asset book value
• B. It increases asset book value
• C. It is an expense on the income statement that has no effect on assets
• D. It is cash paid for depreciation

Answer: (A)

Accumulated depreciation is the total amount of depreciation that has been recognized against a fixed asset since it was acquired. It sits on the balance sheet as a contra-asset account, which means it offsets the asset account. Because it is a contra-asset, it reduces the asset’s net book value (cost minus accumulated depreciation). The asset’s gross cost remains the same, but the net value shown to users declines as depreciation accumulates.

Depreciation expense itself appears on the income statement and lowers net income, but depreciation is a non-cash charge—the cash outlay happened when the asset was purchased, not when depreciation is recorded. So the correct statement is that accumulated depreciation is a contra-asset account that reduces asset book value.