Explaining Depreciation in Layman's Terms

Depreciation is a significant accounting concept that represents the gradual decrease in the value of an asset over its useful life.

Imagine you buy a brand new car for $20,000. As you use the car, its value decreases due to factors such as wear and tear, technological advancements, and market changes. Depreciation is the accounting method used to spread out this decrease in value over the car's expected lifespan.

By understanding depreciation, businesses can accurately reflect the cost of using assets over time and make informed financial decisions.

So, in a nutshell, depreciation is like acknowledging that your shiny new car will lose value over time, and accounting for it in a systematic way.