Accounting for depreciation, a crucial aspect of financial reporting, involves determining the systematic allocation of an asset’s cost over its useful life. For instance, consider a company purchasing a delivery truck for $50,000, which is expected to operate for five years. Depreciation accounting would distribute this cost over the truck’s lifespan.
Depreciation calculation is essential for accurate financial statements, allowing companies to evenly spread asset costs, calculate expenses, and determine the asset’s value over time. Historically, depreciation methods have evolved, with the most significant being the adoption of the “straight-line” method in the early 20th century.