Which statement about depreciation in general is true?

Which statement about depreciation in general is true?

• A. It is a method of measuring cash flow
• B. It allocates the cost of intangible assets
• C. It allocates the cost of a tangible fixed asset over its useful life
• D. It records the asset at market value

Answer: (C)

Depreciation is the process of allocating the cost of a tangible fixed asset over the periods it helps the business generate revenue. This follows the matching principle in accrual accounting, so a portion of the asset’s cost is recognized as an expense each period rather than all at once. It’s a non-cash expense—the cash outlay happened when the asset was purchased, though depreciation can affect cash flow indirectly through tax savings. It does not apply to intangible assets (those costs are amortized), and it does not record the asset at market value. Instead, the asset is kept on the books at historical cost minus accumulated depreciation, yielding a book value that may differ from current market value.

Depreciation is the process of allocating the cost of a tangible fixed asset over the periods it helps the business generate revenue. This follows the matching principle in accrual accounting, so a portion of the asset’s cost is recognized as an expense each period rather than all at once. It’s a non-cash expense—the cash outlay happened when the asset was purchased, though depreciation can affect cash flow indirectly through tax savings. It does not apply to intangible assets (those costs are amortized), and it does not record the asset at market value. Instead, the asset is kept on the books at historical cost minus accumulated depreciation, yielding a book value that may differ from current market value.