The reduction in an asset's value over time allocated as an expense in accounting.
Depreciation in accounting is the systematic allocation of a long-lived asset's cost to expense over its useful life. When you purchase a vehicle, building, or equipment, you can't immediately deduct the full cost as an expense. Instead, depreciation spreads the deduction over years, matching the expense to when the asset generates revenue. Common depreciation methods include straight-line (equal amounts each year), declining-balance (higher deductions early), and units-of-production (based on usage). Depreciation is a non-cash expense—no money actually leaves, but the expense reduces taxable income. For tax purposes, the IRS specifies which assets qualify for depreciation and how long the depreciation period must be. Understanding depreciation is important for business owners claiming deductions and for evaluating companies' true profitability.