Final answer:
We use a contra asset account to record accumulated depreciation instead of directly reducing the depreciable asset account to provide a clear distinction between the original cost of the asset and its accumulated depreciation. It allows for better financial reporting and analysis.
Step-by-step explanation:
The reason we use a contra asset account to record accumulated depreciation instead of directly reducing the depreciable asset account is to provide a clear distinction between the original cost of the asset and its accumulated depreciation. By doing so, it allows for better financial reporting and analysis. The contra asset account reduces the value of the asset separately, making it easier to calculate the net book value of the asset.
For example, let's say a company purchases a machine for $10,000 and estimates its useful life to be 5 years. Each year, the company will record $2,000 ($10,000/5) as accumulated depreciation in the contra asset account, while keeping the depreciable asset account at its original cost of $10,000. This way, the net book value of the asset is easily determined by subtracting the accumulated depreciation from the original cost.