Why is depreciation necessary?

Depreciation is an incentive for investment in equipment. It encourages businesses to buy equipment that will be used to provide employment.

Depreciation is effectively a tax credit. It reduces the profits and therefore the taxes due.

Depreciation cost is a term used to account for the loss of value in an item over time. There are four methods of depreciation that are approved for use under the generally accepted accounting principles or GAAP. The most commonly used methods are straight-line depreciation, declining balance and percentage of use.