Depreciation is an accounting term that defines the gradual reduction in the value of a tangible asset over time due to use, wear and tear, and obsolescence. Depreciation is a non-cash expense on your business’s financial statements, meaning it has no actual cash cost. Instead, it’s used to calculate the loss in value of an asset each year so that the company can report accurate numbers come tax time. Understanding depreciation can help business owners better manage their assets, improve their bottom line and ultimately increase profitability.