Accounting Fundamentals Certification (AFC) 2025 – 400 Free Practice Questions to Pass the Exam

The primary function of the Accumulated Depreciation account is to reflect the wear and tear on assets. This account represents the total amount of depreciation expense that has been charged against an asset since it was acquired. It serves as a contra asset account, meaning it reduces the carrying value of the related asset on the balance sheet.

As assets are used over time, they typically lose value due to factors like usage, obsolescence, and physical deterioration, which is characterized by wear and tear. Depreciation systematically allocates the cost of these assets over their useful lives, ensuring that the financial statements accurately reflect the decreasing value of the assets.

The other options do not capture the essence of what Accumulated Depreciation is designed to do. It does not record cash receipts; instead, it deals with the accounting treatment of asset values. Similarly, it does not track appreciation because depreciation specifically measures the reduction in value, not an increase. Finally, while depreciation can factor into the assessment of future sale values, that is not its primary purpose; the focus is on tracking the current state of asset value over time due to usage.