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The asset is referred to as a depreciable asset. Depreciation is any method of allocating such net cost to those periods in which the organization is expected to benefit from use of the asset. Businesses depreciate long-term assets for both tax and accounting purposes.

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In accountancy, depreciation refers to two aspects of the same concept: These may be specified by law or accounting standards, which may vary by country. This expense is recognized by businesses for financial reporting and tax purposes.

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Generally this involves four criteria: This is usually done in a rational and systematic manner. Methods of computing depreciation, and the periods over which assets are depreciated, may vary between asset types within the same business and may vary for tax purposes.

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One such cost is the cost of assets used but not immediately consumed in the activity. If an ams dating method is expected to produce a benefit in future periods, some of these costs must be deferred rather than treated as a current expense.

Depreciation is technically a method of allocation, not valuation,[3] even though it determines the value placed on the asset in the balance sheet. The business then records depreciation expense in its financial reporting as the current period's allocation of such costs.

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In determining the profits net income from an activity, the receipts from the activity must be reduced by appropriate costs.