What Is Depreciation?
Depreciation is the systematic allocation of an asset's cost over its useful life. It reflects wear, age, or obsolescence. Companies use it to match expenses with the revenue the asset helps generate.
How Depreciation Works
Businesses choose a method such as straight-line depreciation, which spreads cost evenly, or accelerated methods that front-load expense. Each period, a depreciation charge reduces the asset's book value on the balance sheet.
Why Depreciation Matters
Depreciation lowers taxable income and reflects true operating costs. It helps investors and analysts assess capital intensity and asset replacement needs. For more on accounting treatment, see the Investopedia overview of depreciation.
