Finance
What is Depreciation?
Depreciation is the gradual loss of value of an asset over time as it wears out or becomes outdated. In accounting, it spreads an asset's cost across the years it's used, rather than counting it all in the year it was bought.
See it, don’t just read it.
Watch a 2-minute lesson with voice + animation that explains depreciation.
Key things to understand
- 1It's the decline in an asset's value as it ages or wears out.
- 2Accounting spreads a big purchase's cost over its useful life.
- 3Common for vehicles, machines, computers, and buildings.
- 4It lowers reported profit and can reduce taxes owed.
Frequently asked questions
- What is depreciation in simple terms?
- The way an asset loses value over time, and how that lost value is recorded a bit each year.
- Why do businesses use depreciation?
- To match an asset's cost to the years it helps generate revenue, giving a truer picture of profit.
- What kinds of things depreciate?
- Physical assets like cars, equipment, computers, and buildings — things that wear out or become obsolete.