An asset loses value over time as a result of use, damage, or obsolescence. Depreciation is the measurement for this decline.
Depreciation is an accounting technique for spreading out the expense of a tangible item over the course of its useful life. How much of an asset's value has been used is shown through depreciation. It enables businesses to purchase assets over a predetermined length of time and generate income from those assets.
The immediate cost of ownership is greatly lowered because businesses do not have to fully account for them in the year the assets are purchased. A company's profits can be significantly impacted by not accounting for depreciation. Long-term assets can also be depreciated by businesses for tax and accounting reasons.
Depreciation is comparable to amortization, which takes into account the increase in value of intangible assets over time.
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