Accumulated depreciation is best described as which type of account?

• A. An asset account showing the total wear and tear of fixed assets.
• B. A separate asset representing cash set aside.
• C. A contra-asset account that reduces the gross amount of fixed assets.
• D. A liability representing future depreciation.

Answer: (C)

Accumulated depreciation is a contra-asset account that reduces the gross amount of fixed assets on the balance sheet to show net book value. It accumulates the total depreciation expense recorded over the life of the assets, so the fixed asset's carrying amount is the original cost minus this accumulated amount. For example, a piece of equipment that cost 100,000 with 30,000 of accumulated depreciation would have a net book value of 70,000. This account is not an asset itself, nor is it cash set aside, nor a liability for future depreciation; it functions specifically to offset the asset account and reflect how much of the asset’s cost has been allocated to expense over time.