Definition
Depreciation spreads the cost of tangible assets over their useful lives, matching expense to the revenue generated. It's a non-cash expense that reduces reported earnings but not cash flow. Common methods include straight-line and accelerated depreciation.
Formula
Straight-Line Depreciation = (Asset Cost - Salvage Value) / Useful Life
Example
Equipment costing $100,000 with $10,000 salvage value and 10-year life has $9,000 annual straight-line depreciation. This reduces taxable income but not cash.
FAQ
What is Depreciation?
The systematic allocation of an asset's cost over its useful life.
How do you calculate Depreciation?
A common formula for Depreciation is: Straight-Line Depreciation = (Asset Cost - Salvage Value) / Useful Life
Why is Depreciation important?
Depreciation helps investors evaluate fundamental analysis and make more informed decisions.