DEPRECIATION Meaning and
Definition
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Depreciation is a financial term that refers to the gradual decrease in the value of an asset over time. As assets such as buildings, machinery, vehicles, or equipment are used in business operations, they typically incur wear and tear or experience obsolescence, resulting in a reduction in their worth. Depreciation is used to account for this decline in value and is recorded in a company's financial statements.
There are several methods used to calculate and allocate depreciation, with the most common being the straight-line method. Under this approach, the cost of the asset is divided by its useful life to determine the annual depreciation expense. Alternatively, other methods like declining balance or units-of-production method are employed, based on variables such as higher depreciation in the early years or depreciation based on the asset's usage.
Depreciation serves various purposes in financial reporting. Firstly, it reflects the reduction in an asset's value, ensuring that the financial statements present a more accurate and realistic portrayal of an organization's financial position. Secondly, it allows businesses to allocate the cost of an asset over its useful life, aligning expenses with the revenues generated by the asset during that period. Lastly, depreciation may also serve for tax purposes, as it can be deductible from taxable income, reducing the amount of income tax payable by the business.
Overall, depreciation is a crucial concept that plays a significant role in financial accounting by recognizing and accounting for the decline in value of assets, which ultimately assists in making informed financial decisions.
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The act of lessening the value of anything; a falling in value.
Etymological and pronouncing dictionary of the English language. By Stormonth, James, Phelp, P. H. Published 1874.
Top Common Misspellings for DEPRECIATION *
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Other Common Misspellings for DEPRECIATION
Etymology of DEPRECIATION
The word "depreciation" has its roots in the Latin term "depretiare", which means "to lower the price". It is derived from the combination of two Latin words: "de", meaning "down" or "from" and "pretium", meaning "price" or "value". The term was first introduced in the English language in the early 18th century, referring specifically to the decline in value or worth of tangible assets such as property or currency. Over time, its usage expanded to encompass the broader concept of diminishing value or decline in worth in various contexts.
Similar spelling words for DEPRECIATION
- deprecatory,
- self-depreciation,
- depreciator,
- deprecating,
- deprecative,
- tuberization,
- depreciative,
- depreciate,
- deforestation,
- depressant,
- deprecatively,
- deprecate,
- deprecation,
- depreciatory,
- depressing,
- depression,
- depreciating,
- tuberisation.
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