Why is accumulated depreciation increasing on the credit side in accounting? This involves the rules for borrowing and lending accounts and the operation of accounting equations. In accounting, records are recorded using the debit accounting method, where debit entries for assets and expenses increase their balances, while credit entries for liabilities, owners' equity, and income accounts increase their balances. Accumulated depreciation is used to express the value consumption of fixed assets after they have been used for a certain period of time, and reflects the actual value of fixed assets in financial statements. Since accumulated depreciation is an expense account, it occurs on the credit side according to accounting rules, so when accumulated depreciation is credited, its balance increases.
In practice, an increase in the credit balance of accumulated depreciation does not indicate an increase in the value of the account, but rather a decrease in the net value of the fixed asset. This is because the original value of the fixed asset is on the debit side and the accumulated depreciation is on the credit side, and the two are subtracted to obtain the book value of the fixed asset. Therefore, the increase in the credit balance simply reflects the depletion of the value of the fixed asset, not its appreciation.
For example, let's say a company buys a piece of machinery with an original value of $10,000 and an estimated useful life of 5 years and depreciation of $2,000 per year. When the company does depreciation bookkeeping:
1.First of all, the entries at the time of depreciation are:
Borrow: Depreciation expense $2,000.
Credit: Accumulated depreciation of $2,000.
2.At the end of the year, the credit balance for accumulated depreciation is $2,000, indicating that the equipment has been used for one year and has decreased in value by $2,000.
In addition to the example of fixed assets, there are a few other circumstances that can also explain why an increase in credit balance does not represent an increase in value. For example, a deferred revenue account is also a common example of a credit balance increase representing a decrease in value, as deferred revenue represents revenue that will be realized in the future, and over time this portion of revenue will be recognized and transferred to the revenue account to decrease the revenue. These examples illustrate that an increase in credit balance in accounting does not necessarily indicate an increase in value, and needs to be understood on a case-by-case basis. Finance and accounting