What is depreciation?

Depreciation is an accounting term referring to the decline in value of an asset over time. It is a systematic allocation of the asset's cost over its useful life. All tangible assets, such as buildings, machinery, vehicles, and even intangible assets like patents and copyrights, are subject to depreciation. The purpose of depreciation is to match the expense of using an asset with the revenue it generates over its useful life. By spreading the cost of the asset over multiple accounting periods, depreciation helps in recognizing the gradual wear and tear or obsolescence of the asset. Depreciation also assists in determining the true profit or loss of a business by accurately reflecting the decrease in the value of its assets.

This mind map was published on 10 January 2024 and has been viewed 62 times.