Learning Goal: I’m working on a accounting multi-part question and need the explanation and answer to help me learn.
Depreciation is the systematic allocation of the cost of an asset over its useful life. It recognizes the gradual reduction in the value of an asset due to wear and tear, obsolescence, or passage of time. Depreciation expense is recorded on the income statement and reduces the asset’s carrying value on the balance sheet. It helps match the cost of using the asset with the revenue it generates, ensuring accurate financial reporting. Various methods such as straight-line, declining balance, and units of production are used to calculate depreciation. Ultimately, depreciation reflects the ongoing consumption of an asset’s value during its operational life.
