Depreciation is when the value of a currency is lowered. The depreciation of the U.S. dollar when compared to the Euro, for example, means that you'll pay more for things in Europe at the current exchange rate.
Depreciation is from the Latin word depretiare, which means to lower in price, with the roots de, meaning "down," and pretium, meaning "price." If something goes down in value, then the amount of the decrease is called depreciation. If, for example, you buy a car for $10,000, but a year later it is only worth $8,000 due to wear and tear, then the depreciation on the car is $2,000.
Definitions of depreciation
noun
a decrease in price or value
“depreciation of the dollar against the yen”
noun
decrease in value of an asset due to obsolescence or use
noun
a communication that belittles somebody or something
synonyms: derogation, disparagement
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types:show 14 types...hide 14 types... cold water
disparagement of a plan or hope or expectation
belittling, denigrationa belittling comment
aspersion, slura disparaging remark
detraction, petty criticisma petty disparagement
sour grapesdisparagement of something that is unattainable
condescension, disdain, patronagea communication that indicates lack of respect by patronizing the recipient
calumniation, calumny, defamation, hatchet job, obloquy, traducementa false accusation of an offense or a malicious misrepresentation of someone's words or actions
ethnic slura slur on someone's race or language
assassination, blackwash, character assassinationan attack intended to ruin someone's reputation
malignment, smear, vilificationslanderous defamation
libela false and malicious publication printed for the purpose of defaming a living person
words falsely spoken that damage the reputation of another
name calling, namesverbal abuse; a crude substitute for argument
epithet, namea defamatory or abusive word or phrase
type of: discourtesy, disrespectan expression of lack of respect
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Definition: Depreciation expense is the cost allocated to a fixed asset during a period. Many people think this is a way to “expense” assets over time, but that’s not really true. It is recorded as an expense on the income statement, but it isn’t an expense of the asset. Instead, it is allocating the cost of the asset over its useful life.
What Does Depreciation Mean?
What is the definition of depreciation? Remember, fixed assets are capitalized when they are purchased. No expenses hit the income statement during the purchase. An asset account is debited and the cash or payables accounts are credited. This capitalization concept is based on the matching principle, which states that we need to match expenses with the revenues they help generate.
If we expensed capital assets, we would be recording all of the expenses for an asset that will last five plus years in the year of the purchase. This doesn’t match the revenues or expenses.
Depreciation is a way to fix this problem. It takes the depreciable cost of an asset and allocates it over the useful life. This way the expense actually reflects the income produced from the asset in that period.
There are several different depreciation methods that accountants can use to allocate costs. Traditionally, financial accounting textbooks tend to focus on the straight-line method because it is easy to calculate. Simply divide the depreciable cost by the useful life. This allocates an even amount of costs for each year.
Let’s look at an example.
Jim’s Machine Shop purchases one Lathe for $10,000. This piece of equipment has a useful life of 10 years and a salvage value of zero. When Jim purchases this asset, he will first record it on the balance sheet for the amount he paid for it by debiting the equipment account and crediting the cash account.
Each year after the purchase, Jim will allocate that year’s cost of the machine using the straight-line method. He calculates the expense by subtracting the salvage value of the equipment from the purchase price and dividing the difference by the useful life.
Thus, Jim records a $1,000 expense for each year of the machine’s useful life until all of the costs are allocated.
There are several problems with this method, however. Most assets tend to be more useful when they are newer. Take a computer for example. A new computer is much more useful than a five year old one. Thus, on assets like this we use accelerated depreciation methods like the double declining method.
Summary Definition
Define Depreciation: Depreciation is an accounting expense that recognized the cost of an asset over its useful life.