What are depreciation methods?

Depreciation methods refer to the various strategies used to allocate the cost of a tangible asset over its useful life. This allocation reflects how the asset's value decreases over time due to factors such as wear and tear, obsolescence, or age. By employing these methods, businesses can match the expense of utilizing the asset to the revenues generated by it, providing a more accurate representation of their financial performance.

There are several commonly used depreciation methods, such as straight-line depreciation, which spreads the cost evenly across the asset's life, and declining balance methods that account for higher expenses in the earlier years. This practice is essential for financial reporting and tax purposes, enabling organizations to receive tax deductions that accurately reflect their economic use of the asset.

The other options do not accurately define depreciation methods; instead, they pertain to different accounting concepts or practices. Understanding depreciation methods is crucial for businesses as they contribute to financial health assessments and effective asset management.