Depreciation is the gradual reduction in the value of an asset over time due to wear and tear. It’s used in accounting to allocate the cost of tangible assets over their useful lives, matching the expense with the revenue generated by the asset. This systematic allocation helps businesses more accurately reflect the true cost of using an asset and provides a clearer picture of profitability. Depreciation also offers tax benefits, as it is a deductible expense, reducing taxable income. Various methods of depreciation, such as straight-line or declining balance, can be applied depending on the nature of the asset and the business’s accounting policies. Properly accounting for depreciation ensures accurate financial reporting and helps in budgeting for future capital expenditures.