Depreciation
Definition:
Depreciation is a decrease in the value of an asset over time due to wear and tear, obsolescence, or functional exhaustion. It is a non-cash expense that is recorded on the financial statements of a business.
Example:
There are two main types of depreciation:
Straight-line depreciation: Straight-line depreciation is the most common type of depreciation. It is calculated by dividing the cost of the asset by its useful life.
Accelerated depreciation: Accelerated depreciation is a method of depreciation that allows businesses to deduct more depreciation in the early years of an asset's life. This can be beneficial for businesses that want to reduce their taxable income in the early years.