Depreciation

What is Depreciation?

Depreciation is an accounting method used to allocate the cost of a tangible asset over its useful life. It represents how much of an asset’s value has been used up, accounting for wear and tear or obsolescence.

Why It Matters

• It allows businesses to match the cost of an asset with the revenue it generates over time.

• It reduces the carrying value of assets on the balance sheet to reflect their current state.

• Depreciation is a non cash expense that reduces taxable income without requiring an immediate cash outflow.