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Businesses depreciate long-term assets for both tax and accounting purposes. The former affects the balance sheet of a business or entity, and the latter affects the net income that they report.

Generally the cost is allocated, as depreciation expense, among the periods in which the asset is expected to be used. This expense is recognized by businesses for financial reporting and tax purposes. Methods of computing depreciation, and the periods over which assets are depreciated, may vary between asset types within the same business and may vary for tax purposes.

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These may be specified by law or accounting standards, which may vary by country. There are several standard methods of computing depreciation expense, including fixed percentage, straight line, and declining balance methods.

Depreciation expense generally begins when the asset is placed in service. For example, a depreciation expense of per year for five years may be recognized for an asset costing In determining the profits net income from an activity, the receipts from the activity must be reduced by appropriate costs.

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One such cost is the cost of assets used but not immediately consumed in the activity. Depreciation is any method of allocating such net cost to those periods in which the organization is expected to benefit from use of the asset.

The asset is referred to as a depreciable asset.

Depreciation is technically a method of allocation, not valuation,[3] even though it determines the value placed on the asset in the balance sheet. Any business or income producing activity[4] using tangible assets may incur costs related to those assets.

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If an asset is expected to produce a benefit in future periods, some of these costs must be deferred rather than treated as a current expense. The business then records depreciation expense in its financial reporting as the current period's allocation of such costs. This is usually done in a rational and systematic manner.

Generally this involves four criteria: In accountancy, depreciation refers to two aspects of the same concept: Download the free trial version below to get started. Double-click the downloaded file to install the software. Home; Adam smith; capital asset; depreciation; durable ; economics; s; non-renewable resource; physical capital; production; service; stock.

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