What is the definition of depreciation?

Depreciation is defined as the allocation of an asset's cost over its useful life. This accounting method recognizes that tangible assets, such as machinery or buildings, lose value as they are used over time due to wear and tear, obsolescence, or other factors. By spreading out the cost of the asset over its expected useful life, businesses can more accurately match the expense of using the asset with the revenues it generates, which adheres to the matching principle in accounting.

This systematic approach helps in providing a clearer picture of a company's financial performance during each accounting period, as it reflects the ongoing expense of consuming that asset. Moreover, this allocation can affect various financial metrics, including net income and tax liabilities, making it a crucial concept in financial accounting.

While other options may describe different financial concepts, they do not pertain to the systematic cost allocation of tangible assets over time as depreciation does.