Final answer:
The difference between the Equipment account and its Accumulated Depreciation is called the book value. Depreciation represents the decrease in value of the equipment over time, and the book value reflects the equipment's estimated current value.
Step-by-step explanation:
The difference between the Equipment account and its Accumulated Depreciation is called the book value. The process by which capital assets like equipment lose value over time is known as depreciation.
When a business purchases equipment, it's recorded as a capital asset on the balance sheet because it will be used for more than one year. Over time, the equipment wears out or becomes outdated, and its value decreases.
This decrease in value is represented by accumulated depreciation, which is the total amount of depreciation expense that has been applied to an asset since it was acquired.
The book value of a fixed asset is calculated by subtracting its accumulated depreciation from the equipment's original cost. This value represents the net asset value carried on the books and reflects the equipment's estimated current value.