Depreciation is an accounting method that allows a business to spread the cost of a long-term asset over the asset's useful life. Depreciation is typically used for tangible assets, such as buildings, equipment, and machinery, that are expected to have a useful life of more than one year.

The purpose of depreciation is to recognize the gradual decrease in value of an asset as it is used over time. This decrease in value is known as "wear and tear," and it is a natural occurrence that is caused by the passage of time and the asset's use.

There are several methods that businesses can use to calculate depreciation, including the straight-line method, the declining balance method, and the sum-of-the-years'-digits method. The method chosen will depend on the nature of the asset and the business's accounting practices.

Depreciation is recorded as an expense on the business's income statement, and it reduces the business's taxable income for the year. By reducing taxable income, depreciation can help to lower the business's tax liability.

It is important to note that depreciation is a non-cash expense, which means that it does not involve any actual cash outflow. Rather, it is a way of allocating the cost of an asset over its useful life.