Accumulated depletion

Definition

Accumulated depletion is the total reduction in the value of a natural resource asset over time due to extraction and usage. It represents the portion of the asset's cost that has been allocated as an expense.

5 Must Know Facts For Your Next Test

1. Accumulated depletion is recorded on the balance sheet as a contra-asset account, reducing the book value of natural resources.
2. It is calculated using methods such as units-of-production, which allocates cost based on actual usage.
3. The accumulated depletion account increases with each period's depletion expense.
4. When calculating, it typically involves estimating the total quantity of the resource available and its initial cost.
5. Accumulated depletion impacts financial statements by reducing net income through periodic depletion expenses.

Review Questions

• How does accumulated depletion affect a company's balance sheet?
• What method is commonly used to calculate accumulated depletion for natural resources?
• Why is accumulated depletion important for financial reporting?

Related terms

Depreciation:

The systematic allocation of the cost of a tangible fixed asset over its useful life.

Amortization:

The process of gradually writing off the initial cost of an intangible asset over its useful life.

Units-of-Production Method: A depreciation method that allocates expense based on actual use or production levels.