Depreciation is an accounting method used to allocate the cost of a tangible or physical asset over its useful life. It is the process of deducting the cost of an asset over its useful life. Depreciation is a non-cash business expense incurred by a company for employing a tangible asset like machinery, tools, and equipment for business use. The decrease in value of the asset affects the balance sheet of a business or entity, and the method of depreciating the asset, accounting-wise, affects the net income, and thus the income statement that they report.
Here are some key points about depreciation in accounting:
- Depreciation is any method of allocating the net cost of an asset to those periods in which the organization is expected to benefit from the use of the asset.
- Depreciation is considered to be an expense for accounting.
- Depreciation is often what people talk about when they refer to accounting depreciation. This is the process of allocating an assets cost over the course of its useful life in order to align its expenses with revenue generation.
- Depreciation is a process of deducting the cost of an asset over its useful life. Assets are sorted into different classes and each has its own useful life.
- Depreciation is an important part of your business’s tax returns, but it is a complex concept. There are multiple methods of depreciation used in accounting. The four main types of depreciation are straight-line, declining balance, sum-of-the-years digits, and units of production.
In summary, depreciation is an accounting method used to allocate the cost of a tangible asset over its useful life. It is a non-cash business expense incurred by a company for employing a tangible asset for business use. Depreciation is considered to be an expense for accounting and is an important part of a businesss tax returns.
