Depreciation

What is Depreciation?

Depreciation is the decrease in the value of an fixed asset due to its utilization,  but the point to remember is that depreciation is a non cash item. As you know that accruals is an important concept in accounting, which stats that the revenues and expenses of a single item should be accounted for together.

When you purchase a non-current asset you do not expense for it at the same time, but you gradually over the period of its useful life decrease its value showing its utilization.

An asset can be depreciated using four depreciation methods:

1. Straight Line Method
2. Accelerated Depreciation
3. Double Declining Method 
4. Declining Balance Method
5. Sum of Years Digit Depreciation

Similarly when an intangible asset's book value is reduced, the method used is called amortization instead of depreciation, and when a natural resource value is reduced, its called depletion.

You should be aware of the different terminologies used in accounting.