What is Accumulated Depreciation?

Accumulated Depreciation is the total amount of depreciation expense that has been recorded for a tangible asset since it was put into use. It is a "contra-asset" account, meaning it has a credit balance and is paired with the asset account on the balance sheet to reduce its value. The net result is the asset's "book value".

For Startups: Tracking accumulated depreciation is a fundamental accounting requirement. It provides a way to see how much of an asset's value has been "used up" over time. For a startup with significant hardware or equipment, this account is crucial for accurately representing the value of its assets on the balance sheet.

Example: A startup buys a server for ₹5 Lakhs. Each year, it records ₹1 Lakh in depreciation expense. After three years, the Accumulated Depreciation account will have a balance of ₹3 Lakhs, and the server's book value will be ₹2 Lakhs (₹5L - ₹3L).