What is the impact of accumulated depreciation on the balance sheet?

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Question: What is the impact of accumulated depreciation on the balance sheet?

Options:

Correct Answer: Decreases total assets

Solution:

Accumulated depreciation is a contra asset account that reduces the book value of fixed assets on the balance sheet, thus decreasing total assets.

What is the impact of accumulated depreciation on the balance sheet?

What is the impact of accumulated depreciation on the balance sheet?

Step 1: Understand what accumulated depreciation is. It is the total amount of depreciation that has been recorded for a fixed asset over time.
Step 2: Know that accumulated depreciation is recorded in a separate account called a contra asset account. This means it works against the asset account.
Step 3: Recognize that fixed assets (like buildings or machinery) are listed on the balance sheet at their original cost.
Step 4: Realize that accumulated depreciation reduces the value of these fixed assets on the balance sheet.
Step 5: Calculate the book value of a fixed asset by subtracting accumulated depreciation from the original cost of the asset.
Step 6: Understand that when the book value of fixed assets decreases, the total assets on the balance sheet also decrease.

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