Think about how fresh vegetables decline in quality each day. In a similar way, a company’s asset is also subject to such depreciation. Accumulated depreciation shows the value of the asset which is last month’s value plus this month’s depreciation. Eventually, vegetables will go “off” thus reducing their value and possibly not generating as much revenue as the fresh ones. The same concept applies to a company’s depreciating assets.
For example…
Demonstrator vehicles at car dealers are depreciating assets. For the dealer, the accumulated depreciation of the demonstrator in its first month would be the car’s value as a brand new vehicle plus the depreciation associated with it being a test vehicle that month. The following month, it would be last month’s balance plus the depreciation associated with it this month.
