Depreciation in Accounting: Depreciation is a critical concept in accounting that addresses the gradual decrease in the value of tangible assets over time. Businesses acquire assets such as machinery, vehicles, and buildings to aid in their operations. However, these assets experience wear and tear, obsolescence, or a decline in market value as they age. To reflect this decrease in value accurately, accountants use depreciation methods to allocate the cost of an asset over its useful life. The two primary methods are the straight-line method, which evenly spreads the cost over each year of the asset's useful life, and the declining balance method, which applies a higher depreciation rate to the asset's book value. Depreciation is essential for matching expenses with the revenue generated by the asset, ensuring that financial statements accurately represent the economic reality of a company's operations. It also aids in determining the asset's salvage value and provides insights into when replacements or upgrades might be necessary.

Objective Type Question: In the context of accounting, what is the main purpose of applying depreciation to tangible assets? a) To increase the reported value of assets on the balance sheet b) To align the reported costs of assets with their actual decrease in value over time c) To defer the recognition of expenses until the asset is fully depreciated d) To accelerate the recognition of expenses for tax purposes