What is depreciation?

Depreciation is the decrease in value of an asset over time due to wear and tear, obsolescence, or other factors. It is a method used in accounting to allocate the cost of an asset over its useful life. Depreciation allows businesses to account for the decrease in value of their assets as they are used to generate revenue.

Depreciation is a method of allocating the cost of a capital asset over its useful life. Depreciation reduces the asset's book value (the cost of the asset minus accumulated depreciation) over time. This is done by expensing a portion of the asset's cost each period that it is used.

Depreciation is a non-cash expense, meaning that it does not require the company to use any cash. However, it does affect the company's financial statements. Depreciation reduces the company's net income and shareholders' equity. This is because depreciation is an expense that is deducted from revenue before calculating net income.

There are several different methods of depreciation, but the most common is the straight-line method. Under the straight-line method, the cost of the asset is divided by its useful life to determine the depreciation expense for each period. For example, if an asset costs $10,000 and has a useful life of 5 years, the depreciation expense for each year would be $2,000.