Depreciation is the process of allocating the cost of a tangible asset over its useful life. This accounting method helps businesses spread out the expense of an asset, such as machinery or vehicles, rather than recording the entire cost in the year it was purchased. This approach provides a more accurate picture of a company's financial health. There are different methods of calculating depreciation, including straight-line depreciation and declining balance depreciation. Each method affects financial statements differently, impacting profits and tax liabilities. Understanding depreciation is essential for businesses to manage their assets and comply with accounting standards.