In the balance sheet, accumulated depreciation is classified as which of the following?

• A. A current liability that represents depreciation owed
• B. An operating expense account reported on the income statement
• C. A contra asset account that reduces the related property, plant, and equipment account
• D. An intangible asset account that is amortized over time

Answer: (C)

Verified step by step guidance

1. Understand the nature of accumulated depreciation: it represents the total amount of depreciation expense that has been recorded against a fixed asset since it was acquired.
2. Recall that accumulated depreciation is not a liability or an expense, but rather a contra asset account, meaning it offsets the value of a related asset on the balance sheet.
3. Identify the related asset: accumulated depreciation is linked to property, plant, and equipment (PP&E), reducing their book value over time.
4. Recognize that accumulated depreciation appears on the balance sheet as a deduction from the gross amount of PP&E to show the net book value of these assets.
5. Conclude that accumulated depreciation is classified as a contra asset account that reduces the carrying amount of property, plant, and equipment on the balance sheet.