What is 'Depreciation'?

1. A method of allocating the cost of a tangible asset over its useful life. Businesses depreciate long-term assets for both tax and accounting purposes. 2. A decrease in an asset's value caused by unfavorable market conditions.

Sharper Insight. Smarter Investing. Manage Preferences TERM OF THE DAY Depreciation Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life. Businesses depreciate long-term assets for both tax and accounting purposes. For tax purposes, businesses can deduct the cost of the tangible assets they purchase as business expenses; however, businesses must depreciate these assets in accordance with IRS rules about how and when the deduction may be taken. Breaking it Down: Depreciation is often a difficult concept for accounting students as it does not represent... Read More Related to "Depreciation" Depreciation: Straight-Line Vs. Double-Declining Methods Appreciate the different methods used to describe how book value is "used up". Read More What is the difference between amortization and depreciation? Amortization usually refers to spreading a intangible asset's cost over that asset's useful life. Depreciation refers to prorating a tangible asset's cost over that asset's life. Read More What is the relationship between accumulated depreciation and depreciation expense? Understand the relationship between accumulated depreciation and depreciation expense. Learn how each one is accounted for on a company's financial statements. Read More Related Definitions Sum-Of-The-Years' Digits An accelerated method for calculating an asset's depreciation. This method takes the asset's expected life and adds together the digits for each year. Read More Economic Depreciation A measure of the decrease in value of an asset over a specific period of time. Read More Annuity Method of Depreciation The annuity method of depreciation is a method used to calculate depreciation on an asset by calculating its rate of return as if it was an investment. Read More Unit of Production Method The unit of production method calculates depreciation when the life of an asset is best measured by how much the asset has produced. Read More You are currently subscribed as: mondemand.forex@blogger.com Unsubscribe  |  Manage Subscriptions Investopedia, LLC, A Division of IAC. 114 West 41st St, floor 8, New York NY 10036 Copyright © 2018, Investopedia, LLC. All Rights Reserved Follow Us: