The reduction in value of a tangible asset over time is called what accounting concept?

The reduction in value of a tangible asset over time is called what accounting concept?

• A. Amortization
• B. Balance Sheet
• C. Depreciation
• D. Assets

Answer: (C)

Depreciation is the accounting process that allocates the cost of a tangible fixed asset over its useful life to reflect its declining value from wear, tear, and obsolescence. It explains why the asset’s book value decreases each year even though cash was paid upfront. In practice, you record depreciation expense on the income statement and reduce the asset’s carrying amount on the balance sheet through accumulated depreciation. Amortization is a related idea but applies to intangible assets like patents or software, not physical assets. A balance sheet is the financial statement that lists assets, liabilities, and equity, while assets are the resources a company owns. The essential point is that the reduction in value over time for tangible assets is depreciation.

Depreciation is the accounting process that allocates the cost of a tangible fixed asset over its useful life to reflect its declining value from wear, tear, and obsolescence. It explains why the asset’s book value decreases each year even though cash was paid upfront. In practice, you record depreciation expense on the income statement and reduce the asset’s carrying amount on the balance sheet through accumulated depreciation. Amortization is a related idea but applies to intangible assets like patents or software, not physical assets. A balance sheet is the financial statement that lists assets, liabilities, and equity, while assets are the resources a company owns. The essential point is that the reduction in value over time for tangible assets is depreciation.