Explain the concepts of depreciation?

Question

your friend lucy slept through a class in which her professor explained the conepts of depreciation and amortization.

Answer 1

Depreciation refers to two very different but related concepts: a) decline in value of assets, and b) allocation of the cost of tangible assets to periods in which the assets are used. The former affects values of businesses and entities. The latter affects net income. Generally the cost is allocated, as depreciation expense, among the periods in which the asset is expected to be used. Such expense is recognized by businesses for financial reporting and tax purposes.