What is a depreciation on fixed assets?

Depreciation on fixed assets refers to the systematic allocation of the cost of a tangible asset over its useful life. This accounting method reflects the wear and tear, obsolescence, or decrease in value of the asset over time, allowing businesses to match the cost of the asset with the revenue it generates. By recording depreciation, companies can reduce their taxable income, as it is treated as an expense on the income statement. Common methods of calculating depreciation include straight-line, declining balance, and units of production.