Depreciating

Depreciating refers to the systematic allocation of the cost of a tangible fixed asset over its estimated useful life. In accounting, depreciation is a non-cash expense that reflects wear, tear, obsolescence, or aging, and it reduces both the asset’s carrying value on the balance sheet and the net income on the income statement.

Common methods include straight-line, where the same amount is expensed each year; declining balance, which accelerates depreciation in early years; and units of production, which ties expense to asset usage. The choice of method and the estimate of useful life determine annual depreciation, and these estimates are reviewed regularly.

Tax rules often allow depreciation as a deductible expense, but tax depreciation frequently follows distinct schedules and rates from book depreciation. In some jurisdictions regimes such as MACRS or other accelerated methods exist, leading to differences between bookkeeping and tax accounting.

Impact: Depreciation reduces reported earnings and book value while not directly affecting cash flow. On disposal or retirement, the asset is removed from the books, and any resulting gain or loss is recognized. Impairment may trigger an additional write-down if the asset’s recoverable value falls below its carrying amount.

Depreciation applies to tangible assets; for intangible assets, amortization is used. Depreciating should not be confused with deprecation, which is a separate term that refers to decline in value in non‑accounting contexts or, in everyday language, to express disapproval.