Depreciation

Depreciation, in accounting, is a systematic method of allocating the cost of a tangible asset over its useful life. It reflects the gradual reduction in an asset's value due to wear and tear, obsolescence, passage of time, or usage. Rather than representing an actual market value decrease, depreciation is an accounting convention designed to match the expense of using an asset with the revenue it helps generate, adhering to the matching principle of accounting. This allows businesses to spread the cost of a significant capital expenditure over several years, instead of expensing it all in the year of purchase.