Depreciation

Depreciation is the accounting method of allocating the cost of a tangible asset over its useful life. It represents how much of an asset's value has been used up over time. Depreciation is an important concept for businesses for tax and accounting purposes.

The straight-line method spreads the cost evenly over the asset's useful life. The declining balance method accelerates depreciation, allocating more expense to the early years. The sum of the years' digits method is another accelerated depreciation approach.

In the U.S., the Modified Accelerated Cost Recovery System (MACRS) is the current tax depreciation system used for most tangible assets. MACRS allows for accelerated depreciation, providing businesses with larger tax deductions in the early years of an asset's life.