What is true about accumulated depreciation?

Accumulated depreciation is the total amount of depreciation expense that has been allocated to an asset over its useful life. It is a crucial aspect of financial reporting that allows businesses to account for the reduction in value of their tangible assets over time.

When considering the correct statement, it is important to note that accumulated depreciation is indeed subtracted from total assets on the balance sheet. This subtraction reflects the net book value of the assets, helping stakeholders understand how much value remains of the assets after accounting for wear and tear or obsolescence. For example, if a company has machinery that originally cost $100,000 and has $30,000 of accumulated depreciation, the net book value shown on the balance sheet would be $70,000.

The other statements do not accurately reflect the role of accumulated depreciation in financial conditions. It does not represent cash available for new equipment; rather, it is a non-cash accounting measure. Furthermore, it is highly relevant to financial reporting as it provides insights into asset management and the long-term financial health of a company, enhancing transparency for investors and creditors.