Tracking What You Own

Assets are resources a business owns, like buildings, equipment, or vehicles. Over time, some assets lose value—a process called depreciation.

Depreciation Explained

• Why Depreciate? Assets like computers or machines wear out or become outdated. Depreciation spreads the cost over their useful life.
• Common Methods: The straight-line method divides the cost evenly over years; the declining balance method charges more at the beginning.

Accounting Impact

Depreciation affects both the balance sheet (lowering asset value) and the income statement (as an expense), which reduces net income.

Real-World Example

Businesses must account for depreciation to get a true picture of profits and to plan for replacing old equipment.