What impact does accumulated depreciation have on the book value of an asset?

Accumulated depreciation plays a crucial role in determining the book value of an asset. As assets are used over time, their value decreases due to wear and tear, obsolescence, and other factors. This decrease in value is recorded as accumulated depreciation. When you subtract accumulated depreciation from the original cost of the asset, you arrive at its book value.

The book value represents the net value of an asset that is reflected on the balance sheet, and it is essential for accurate financial reporting and decision-making. By accounting for accumulated depreciation, businesses can show a more realistic appraisal of what their assets are worth, considering their age and current condition. As a result, the accumulation of depreciation directly decreases the book value of the asset over time, allowing stakeholders to understand the actual economic position of the company concerning its assets.