depreciation

de·pre·ci·a·tion   (dĭ-prē'shē-ā'shən)    n.   A decrease or loss in value, as because of age, wear, or market conditions. Accounting An allowance made for a loss in value of property. Reduction in the purchasing value of money. An instance of disparaging or belittlement.

depreciation [(di-pree-shee-ay-shuhn)]

A decline over time in the value of a tangible asset, such as a house or car.

Depreciation

1. An expense recorded to reduce the value of a long-term tangible asset. Since it is a non-cash expense, it increases free cash flow while decreasing reported earnings.

2. A decrease in the value of a particular currency relative to other currencies.

Investopedia Commentary

1. Depreciation is used in accounting to try and match the expense of an asset to the income that the asset helps the company earn. For example, if a company bought a piece of equipment for $1 million and expected it would have a useful life of 10 years, it would be depreciated over the 10 years. Every accounting year the company would expense $100,000 (assuming straight line depreciation), and this would be matched with the money that the equipment helps to make each year.

2. Examples of currency depreciation are the infamous Russian rouble crisis, where the rouble lost 25% of its value in one day.

Related Links

Appreciating Depreciation
Understanding Pro-Forma Earnings

See also: Accelerated Depreciation, Accretion, Amortization, Appreciation, Straight Line Basis, Tangible Asset

Also spelled: depriciation

depreciation

The periodic cost assigned for the reduction in usefulness and value of a long-term tangible asset. Because firms can use several types of depreciation, the amount of depreciation recorded on corporate financial statements may or may not be a good indication of an asset's reduction in value. Depreciation not only affects the asset's value as stated on the balance sheet, it also affects the amount of reported earnings. See also Accelerated Cost Recovery System, accelerated depreciation, accumulated depreciation, recapture of depreciation, straight-line depreciation.

Main Entry: de·pre·ci·a·tion
Pronunciation: di-"prE-shE-'A-sh&n
Function: noun
1 : any decrease in the value of property (as machinery) for the purpose of taxation that cannot be offset by current repairs and is carried on company books as a yearly charge amortizing the original cost over the useful life of the property

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accelerated depreciation
: the depreciation of property that was put into use prior to 1980 which is allowed at a faster rate than normal under the depreciation rules in force before the adoption of the Accelerated Cost Recovery System

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straight–line depreciation
: depreciation of an asset by a fixed percentage of its original cost based on its estimated life
2 : a loss in the value of property due to physical deterioration and wear or to obsolescence and lack of adaptability