Depreciation
Financial Dictionary — Accounting Fundamentals
Definition
Depreciation is the systematic allocation of the cost of a tangible asset over its useful life. It reflects wear, usage, or reduction in value of assets such as equipment, vehicles, and buildings. Depreciation helps match the asset’s cost with the revenue it contributes to generating.
Use cases, Example & Why it matters
Use cases
- Used in day-to-day bookkeeping and journal entries to record transactions correctly.
- Used when preparing trial balances and reconciling accounts.
- Used when preparing trial balances and reconciling accounts.
Example
- Example: Accountants use **Depreciation** when recording transactions and preparing the trial balance.
Why it matters
- Why it matters: Ensures accurate records, supports reliable reporting, and reduces posting and reconciliation errors.