Depreciation

Definition

Depreciation is the accounting recognition of the loss in value of a tangible fixed asset due to its use or its holding/ownership by the company. It thus covers two different phenomena: wear due to the use of a product (machines, fittings, careers, vehicles, buildings and so on) and obsolescence, due to the fact that fixed assets used by the company can become obsolete taking into account technological advances in the industry. Depreciation is a so-called "non-cash" charge insofar as it merely reflects arbitrary accounting assessments of the loss in value.

For tax purposes, businesses can deduct the cost of the tangible assets they purchase as business expenses. Depreciation is used to try to match the expense of an asset to the income that the asset helps the company earn. Currency and real estate are two examples of assets that can depreciate or lose value.