Depreciation

tl;drThe systematic allocation of an asset's cost over its estimated useful life, reflecting the consumption of the asset's economic benefits.

Depreciation recognizes that fixed assets like buildings, equipment, and vehicles provide value over multiple periods but gradually lose value through use, wear, and obsolescence.

Consider a delivery company purchasing a truck for $60,000 with an expected five-year life and $10,000 salvage value. Using straight-line depreciation, they record $10,000 annual depreciation expense ($60,000 - $10,000 ÷ 5 years), systematically allocating the truck's cost over its useful life.

Implementing depreciation requires choosing appropriate methods, estimating useful lives, and determining salvage values. Organizations must consider factors like usage patterns, technological change, and tax implications.

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