What is Depreciation?
A definition of Depreciation
“Depreciation is a method used in accounting to allocate the cost of a tangible asset over its useful life, reflecting the asset’s decline in value over time.”
Business Glossary > What is Depreciation?
Examples of Depreciation in a Sentence:
Depreciation helps companies account for asset wear and tear.
The company records depreciation to match expenses with revenues.
It’s important to consider depreciation when calculating net income.
Why is Depreciation Important in Business?
Understanding depreciation is crucial for businesses as it significantly affects financial statements and tax filings. It helps in tracking the real value of assets, thereby influencing pricing, budgeting, and fiscal planning decisions.
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Associated Terms
Here are some associated business terms and synonyms for “Depreciation”:
- Amortization
- Capital Consumption
- Asset Write-Down
General Motors Depreciation
General Motors uses depreciation to allocate the cost of its manufacturing equipment over its useful life. This practice helps GM to assess the wear and tear of its assets and adjust their book value accordingly in financial reports.
Final Notes on Depreciation
Businesses must choose an appropriate method of depreciation to align with their financial reporting and tax strategies. Different methods such as straight-line or declining balance may be used depending on the type of asset.
This has been a definition of Depreciation meaning.
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