what is depreciation?

 Depreciation is an accounting method used to allocate the cost of a tangible asset over its useful life. It is a non-cash expense that is recorded on a company's financial statements to reflect the decrease in value of an asset over time due to wear and tear, obsolescence, or other factors.

For example, when a company purchases a piece of machinery or equipment, it will spread the cost of the asset over the estimated number of years it will be in use. This results in a regular, annual expense on the company's financial statements, which reflects the decrease in value of the asset over time.

The purpose of depreciation is to match the cost of an asset with the revenue it generates. By spreading the cost of an asset over its useful life, a company is better able to match its expenses with the revenue it generates from using the asset. This provides a more accurate picture of a company's financial performance and helps ensure that expenses are not recognized all at once, when the asset is first acquired.