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    Discussing the Accumulated Depreciation Account

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

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    The concepts for depreciation expense and accumulated depreciation are designed to allow for expensing of fixed assets over the expected useful lives of the assets. In accounting theory, this is an application of the matching principle. If equipment is expected to last 10 years, for example, then the cost of the equipment should be extended over 10 years. That's the simple answer, but there are numerous ...

    Solution Summary

    This is a 288 word solution which discusses the concept of accumulated depreciation in terms of the balance sheet values, the matching principle and the presentation showing accumulated as a separate line item.