When a company’s accumulated depreciation decreases, it is normally due to the sale of a long-term fixed asset or group of long-term fixed assets. The accumulated depreciation is the total amount of periodic depreciation expenses for a fixed asset or group of fixed assets that have been charged on a company’s income statement since the asset or group of assets have been purchased or made available for use.
The accumulated depreciation is recorded as an asset account with a credit balance on a company’s balance sheet, which is also known as a contra account. The accumulated depreciation is used to reduce the total gross amount of fixed assets reported on a company’s balance sheet.
Normally, a company’s accumulated depreciation for an asset or group of assets naturally increases over time as depreciation expenses are continuously charged against an asset or group of assets. A company can increase the amount of its accumulated depreciation faster if it elects to use an accelerated depreciation method over a more traditional straight-line depreciation method. Accelerated depreciation increases the period depreciation expense during the early life of an asset or group of assets.
When asset or group of assets of a company is eventually retired or sold, the total amount of the accumulated depreciation associated with the retired or sold asset or group of assets will be reversed. This causes the accumulated depreciation to be reduced by the entire amount of the asset or group of assets when that asset or group of assets is sold.