What is depreciation
Depreciation is a financial concept primarily applied to fixed assets, such as machinery and equipment, or assets acquired for extended ownership. The purpose of depreciation is to spread the cost of a significant purchase over an extended period, aligning with the asset’s expected lifespan.
This practice is rooted in the understanding that fixed assets typically outlast a single accounting period. Depreciating an asset involves recognizing and accounting for the gradual decrease in its value over time due to usage and wear. Notably, an asset eligible for depreciation should be acquired with the intent of lasting at least three years and having a cost exceeding $15,000.