Accumulated depreciation is the total amount of depreciation expense that has been allocated to a tangible asset over its useful life up to a specific point in time. It represents the cumulative depreciation that has been recorded on the asset since it was acquired, reflecting the reduction in the asset's book value due to wear and tear, obsolescence, or age.
In financial statements, accumulated depreciation is subtracted from the original cost of the asset (or the cost of the asset adjusted for any improvements or reductions) to determine its carrying value or book value. This figure provides insight into how much of the asset's value has been consumed and how much remains.
For example, if a company purchases machinery for $100,000 and depreciates it by $10,000 each year for three years, the accumulated depreciation at the end of the third year would be $30,000. The carrying value of the machinery would then be $70,000 ($100,000 - $30,000).