Depreciation is the reduction in the value of an asset over time, typically due to wear and tear, aging, or changes in market conditions.
In accounting, it represents how much of an asset’s value has been used up and is recorded as an expense on the income statement. Depreciation is most commonly applied to tangible fixed assets such as vehicles, machinery, or buildings. It helps businesses spread the cost of an asset over its useful life, matching expense with revenue generation.
While depreciation reflects a decline in asset value, it can also provide tax advantages by reducing taxable income through allowable deductions.