Depreciation

Depreciation is the systematic allocation of a fixed asset’s depreciable cost over its useful life, reflecting consumption, aging, or obsolescence.

Straight-line depreciation: A depreciation method that allocates an equal expense to each period of an asset’s useful life. It spreads depreciable cost evenly when asset use is expected to be steady.
Fixed asset: A long-term tangible resource held for use in operations rather than resale. Depreciation commonly allocates the cost of these operational resources.
Accumulated depreciation: The total depreciation expense recorded for an asset since it was placed in service. It collects the periodic allocations that reduce an asset’s book value.
Amortization: The allocation of an intangible asset’s cost over its useful life, or the repayment of a loan over time. It is the usual cost-allocation counterpart for finite-lived intangible assets.
Income statement: A financial statement summarizing revenues, expenses, and profit or loss over a period. Depreciation expense reduces reported profit for the period.
Declining-balance depreciation: An accelerated depreciation method that applies a fixed rate to an asset’s remaining book value. It recognizes larger expenses in earlier periods than straight-line depreciation.
Historical cost: The original amount paid or incurred to acquire an asset, recorded at its transaction-date value. It is usually the starting point for calculating depreciable cost.
Depreciation expense: The portion of an asset’s depreciable cost recognized as expense in an accounting period. It is the period-by-period charge created by a depreciation method.
Depletion: The allocation of a natural resource’s cost as the resource is extracted or consumed. It applies to extractive resources rather than ordinary fixed assets.
Balance sheet: A financial statement reporting an entity’s assets, liabilities, and equity at a point in time. Accumulated depreciation reduces the reported carrying amount of depreciable assets.

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