What is Depreciation?

Depreciation is the method we use in accounting to spread the cost of an asset over its useful life. In non-accounting terms . . . depreciation is recognized as the decrease in value of an asset over time, due to normal wear and tear, and is a fundamental part of Accounting.All Assets when purchased, are recorded at historical cost.

If we use an asset throughout the accounting period and over many years, the asset by its very nature gets physically used up in some fashion, generally as a result of normal wear and tear. In accounting, we practice a fundamental accounting principal of “matching” all costs or expenses with the revenues they helped create. This is called the Matching Principle.
The end result is that the financial statements will show the true cost of generating sales against the actual sales revenues that those costs helped to generate. Depreciation is a fundamental part of accounting.