Financial depreciation refers to the reduction in the value of an asset over time, often due to wear and tear, age, or obsolescence. This concept is important for businesses as it affects the value of their assets on the balance sheet and can impact tax calculations. There are different methods to calculate depreciation, such as the straight-line method and the declining balance method. For example, a vehicle purchased for business use will lose value each year, which can be recorded as an expense, helping to reflect the true financial position of the company.