What do you mean by depreciation in financial accounting?

Answer 1

it's like how a car loses value over time, it becomes worth less and less every year, the difference between what u paid for it originally when u bought it and what it's worth now can be viewed as an expense incurred by the owner

Answer 2

First you have an asset. You add the total amount you pay for the building and land to the business. That is the value of the asset.
Now depreciation, for example, a BUILDING (IRS does not allow the value of land to be depreciated).

It loses value over the years, and that's called depreciation.
If you don't rebuild the building, perhaps over 30 years, the walls may be in poor shape, the foundation is in poor shape, it needs to be painted inside and perhaps outside, and so forth; so the value may be less (according to IRS.org rules and regulations.) The amount that the IRS allows you to subtract from your income from the business each year is the depreciation amount according to the Depreciation Tables - check IRS.org for data.


CAR - Your car loses value after you drive it off the lot.
IRS.org usually says the value may be depreciated over 3 or 5 years, however you may only deduct this from your business income.
If this is your personal car, you car depreciates in value, but you cannot deduct it from your income taxes.

GOD bless us one and all, always.
MBA-Boston Univ.
CPA-retired

Answer 3

It's a systematic method of allocating the cost of an asset (net of expected salvage value) over its useful life. It does not necessarily reflect the true decline in the market value of the asset. It is an accounting convention to recognize expense related to the use of the asset during the period(s) which the asset is providing a benefit.

Answer 4

Expensing the cost of the asset over the life of the asset -- simple as that