Appreciate Details

When an asset appreciates, it shows that its value has gone up since its value was previously assessed. For example, you may have purchased your house at $150,000, but a year later its value appreciated. It is now worth $200,000. This could be due to renovations, demand, and real estate market fluctuations.

The following assets are the ones that most commonly appreciate over time:

  • Property
  • Currency
  • Gemstones
  • Collectibles
  • Financial products and investments

Businesses can also appreciate as their net worth increases. As long as the value of an asset goes up, it will most likely appreciate. Several factors can cause an increase in value:

  • Inflation
  • Increased Demand
  • Improvement of the asset itself (renovations, customizations, updates, etc.)

You can record appreciation in a ledger separate from your fixed asset account, or create a new ledger strictly for yearly appreciations. Either way, you'd record appreciation as a credit.

Appreciate Example

You are an aspiring investor who has saved up to purchase a piece of property in town. The town is currently underdeveloped and has more empty storefronts than occupied. But you see signs that tell you it is on the verge of economic growth. You take advantage of the low real estate prices in the area and purchase a two-family home on the outskirts.

Five years later, the home that you bought has now appreciated in value by $50,000. Not only did you make significant renovations to the home, but your predictions about the town were also correct. A wealthier demographic has now entered the town and the demand for entertainment and pedestrian-friendly streets has resulted in an economic boom. The town government is even building a new high school to accommodate new families.

With an increase in local business and the town's beautification, demand for real estate has skyrocketed. You could sell your two-family for a significant amount of money, but decide to raise rent prices and rent out both floors instead.

Appreciate vs. Depreciate

Decreciate is the opposite of appreciate. Instead of an asset increasing in value, an asset decreases in value over time. Depreciation could be caused by usage—as with a car, the more miles, the more it depreciates—a decrease in demand, antiquated technology—the older a smartphone gets, the less valuable it becomes—or any damages to the asset itself. As an accountant, you would record depreciation as a debit to a depreciation expense account. You'd also credit the accumulated depreciation account.

Appreciate vs. Accumulate

Appreciate refers to an asset that increases in value over time. Accumulate means gathering and increase the number of something. It is tangible. When you accumulate something, you are actively adding more. For example, when you accumulate cars as part of a collection, you add physical cars to your garage.

Appreciation is more theoretical and reliant on man-made concepts of value. The cars that you accumulate can appreciate over time, but you don't physically place "value" on them. The value has to be calculated—you can't see it until you see the numbers.