What is Depreciation?

Depreciation explained in 2 minutes. Depreciation is defined as reduction in the value of an asset over time, mainly due to wear and tear, obsolescence, passage of time etc. Depreciation helps to report the correct net book value of a particular asset. As the cost is spread over its useful life, this allows the business to replace the assets with minimum effect on the revenue. Depreciation expense also reduces the taxable income and thereby increases the tax savings.