What is depreciation?

Definition of Depreciation

In accounting, depreciation is the assigning or allocating of the cost of a plant asset (other than land) to expense in the accounting periods that are within the asset's useful life.

Example of Depreciation

Let's assume that a business purchases a delivery truck with a cost of $100,000 and it is expected to be used for 5 years. If we also assume that the truck will have no salvage value, the company will record depreciation expense of $100,000 over the five years. When the straight-line method of depreciation is used the annual depreciation expense will be $20,000. (The amounts can vary depending on the depreciation method and assumptions.)