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The accounting method of allocating the cost of a tangible asset over its useful life, reflecting its decline in value over time.
When a company buys a $100,000 piece of equipment with a 10-year useful life, it does not expense the entire amount in year one. Instead, it expenses $10,000 per year (straight-line depreciation), matching the cost with the revenue the asset generates. Accelerated depreciation methods (like MACRS used in U.S. tax) front-load the expense, providing larger tax deductions in early years. Depreciation is a non-cash expense, meaning it reduces reported earnings but does not affect cash flow, which is why it is added back in cash flow calculations.