Depreciation
Depreciation
Depreciation (/dɪˌpriːʃiˈeɪʃən/) is a term used in Accounting and Economics to describe the gradual decrease in the value of an asset over time. The term is derived from the Latin word 'depretiare', which means 'to lower in price or value'.
Definition
Depreciation is the systematic allocation of the depreciable amount of an Asset over its useful life. The depreciable amount of an asset is the cost of an asset or other amount substituted for cost, less its residual value. The useful life of an asset is the period over which an asset is expected to be available for use by an entity, or the number of production or similar units expected to be obtained from the asset by the entity.
Methods of Depreciation
There are several methods of calculating depreciation, including the Straight-line method, Declining balance method, and Units of production method. Each method has its own advantages and disadvantages, and the choice of method can have a significant impact on the financial statements of a business.
Related Terms
- Amortization: This is similar to depreciation, but it is used for intangible assets like patents and copyrights.
- Impairment: This is a sudden decrease in the value of an asset, beyond the usual depreciation.
- Accumulated Depreciation: This is the total depreciation that has been charged to a fixed asset since its acquisition.
See Also
External links
- Medical encyclopedia article on Depreciation
- Wikipedia's article - Depreciation
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