Depreciation Business is a financial accounting method used to assess the annual loss of value in an asset. It is frequently used to calculate the amount of money a company can write-off as losses tied to investments such as machinery, vehicles, and buildings that decrease in value over time. Depreciation is an essential concept when it comes to running a business as it helps organizations plan for future investments, as well as keep their taxes lower. To determine depreciation, companies first need to identify the total cost of the asset and its estimated lifespan. They then divide this cost by the estimated number of years, or months, until the property has no value. This figure then gives you the depreciation expense for each period, allowing businesses to determine their projected income and plan accordingly.