Depreciation is the decrease in price or value of assets over time. Factors that usually contribute to depreciation of assets include wear and tear, age, and market conditions such as demand. The opposite of depreciation is called appreciation, which refers to the increase in value of an asset over time.
Common assets that depreciate include electronic equipment, cars, buildings, and furniture.
In accounting, recording depreciation as an expense can lower a company’s profits and value of assets. This kind of write-off (expense) help companies accurately state the values of their assets on their balance sheets. It also helps balance the expense of an asset with the income that asset produces.
Recording depreciation is also a tax benefit in many countries. Most products depreciate over time, so a company can deduct a portion of a purchase’s value each year from its taxes.
