Learn what depreciation is, why companies depreciate, and how to calculate it using different methods. See examples of depreciation for fixed assets such as machinery, tools, and equipment. Depreciation is thus the decrease in the value of assets and the method used to reallocate, or "write down" the cost of a tangible asset (such as equipment) over its useful life span. Businesses depreciate long-term assets for both accounting and tax purposes. Understanding the different depreciation techniques allows firms to distribute an asset’s cost appropriately throughout its useful life. This article delves into different types of depreciation methods, studying their formulae and presenting practical examples to help with understanding. Depreciation is a non-cash expense shown in the profit and loss account. It reduces the net profit but does not involve actual cash outflow, ensuring correct periodic matching of asset expense and revenue.
