What Does Depreciating an Asset Mean?

In accountancy, depreciation refers to two aspects of the same concept: first, the actual decrease of fair value of an asset, such as the decrease in value of factory equipment each year as it is used ...

What is depreciating an asset?

The term depreciation refers to an accounting method used to allocate the cost of a tangible or physical asset over its useful life or life expectancy. Depreciation represents how much of an asset's value has been used.

How does depreciating an asset work?

By charting the decrease in the value of an asset or assets, depreciation reduces the amount of taxes a company or business pays via tax deductions. A company's depreciation expense reduces the amount of earnings on which taxes are based, thus reducing the amount of taxes owed.