Depreciation is a method of allocating the cost of a tangible asset over its useful life. The purpose of depreciation is to provide a more accurate representation of a company's financial performance and financial position by spreading the cost of an asset over its useful life rather than recognizing it in a single period.

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Tangible assets are physical assets such as buildings, equipment, and vehicles. Depreciation is used to allocate the cost of these assets over their useful life, as the assets are expected to decline in value over time due to wear and tear, obsolescence, and other factors.

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For example, if a company acquires a piece of equipment for $100,000 with an estimated useful life of 10 years, the annual depreciation expense would be $10,000. The annual depreciation expense is recognized as an expense on the income statement, which reduces the company's net income and increases its total expenses. Depreciation is an important concept in accounting, as it helps to provide a more accurate representation of a company's financial performance and financial position.

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