What is Depreciation?
The value of your business assets decreases over time. This decrease in value is called "depreciation." Depreciation is defined as the change in value of an asset over the useful life of the asset. Assets depreciate for two reasons:
- Wear and tear
For example, an auto will decrease in value because of the mileage, wear on tires, and other factors related to the use of the vehicle.
- Obsolescence
Assets also decrease in value as they are replaced by newer models. Last year's car model is less valuable because there is a newer model in the marketplace.
