What is the purpose of the accumulated depreciation account in financial accounting?

• A. To record cash payments made for asset repairs.
• B. To track increases in the market value of fixed assets.
• C. To estimate the future value of an asset.
• D. To record the total amount of depreciation expense that has been allocated to an asset since its acquisition.

Answer: (D)

Verified step by step guidance

1. Understand the concept of depreciation: Depreciation is the systematic allocation of the cost of a tangible fixed asset over its useful life. It reflects the wear and tear, obsolescence, or usage of the asset.
2. Learn the purpose of the accumulated depreciation account: This account is a contra-asset account used to record the total amount of depreciation expense that has been allocated to an asset since its acquisition.
3. Recognize the relationship between accumulated depreciation and the asset's book value: The accumulated depreciation account reduces the book value of the asset on the balance sheet, showing the net value of the asset after accounting for depreciation.
4. Differentiate accumulated depreciation from other accounts: Accumulated depreciation does not track cash payments, market value changes, or future value estimates. It strictly records the cumulative depreciation expense over time.
5. Apply this understanding to the problem: The correct purpose of the accumulated depreciation account is to record the total amount of depreciation expense allocated to an asset since its acquisition, as stated in the problem.