FinTech Glossary

What is Depreciation?

Depreciation is the systematic allocation of the cost of a tangible asset over its useful life, reflecting the gradual reduction in its value due to usage, wear and tear, or obsolescence.

How Depreciation Works

Assets like machinery, vehicles, and equipment lose value over time. Businesses spread this cost across years using methods such as:

- Straight-line method

- Written down value method

Depreciation is recorded as an expense in financial statements.

Why Depreciation Matters

Depreciation affects profitability, tax liability, and asset valuation. It helps:

- Match expenses with revenue

- Reflect true financial position

- Reduce taxable income

Business Context

Accurate depreciation ensures reliable reporting and better decision-making around asset investments and replacements.