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Depreciation: Definition and Meaning
Definition
Depreciation is the systematic allocation of a tangible long-term asset’s cost over its estimated useful life.
Why It Matters
Depreciation recognizes that equipment, vehicles, buildings, and other long-lived assets may provide benefits over multiple periods. It affects reported expenses, asset book values, profitability measures, and certain tax-planning discussions.
Financial-statement depreciation and tax depreciation may differ. The appropriate method, useful life, and treatment depend on the accounting framework, tax rules, and facts of the asset.
Example
A $50,000 piece of equipment with a five-year useful life may be depreciated over that period using an appropriate method.
Related Terms
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