Question

Question: Does the balance in the accumulated depreciation- machinery account represent funds to replace the machinery when it wears out? If not, what does it represent?

Short answer

No, the balance in the accumulated depreciation- machinery account does not represent funds to replace the machinery when it wears out.

Step-by-step solution

Accumulated depreciation

Accumulated depreciation is the total amount of depreciation expense allocated to a specific asset since the asset was put into use. It is a contra asset account- a negative asset account that offsets the balance in the asset account it is normally associated with.

What accumulated deprivation represents

Accumulated depreciation is the sum of current and prior periods’ depreciation expenses. The balance in the accumulated depreciation account does not represent funds to replace the machinery when it wears out. It represents the total depreciation charged since the asset is in service.