Financial statements depreciation is an accounting process that involves recording a reduction in the value of an asset over time. This is due to wear, tear, obsolescence, or other factors that reduce the value of these assets as they are used up or become outdated. Depreciation is essential for correctly measuring a company’s financial performance on their balance sheet and income statement. It allows businesses to spread out costs associated with purchasing fixed assets over multiple accounting periods and alleviates the burden of having to pay those large expenses all at once. By recording depreciation, businesses can accurately measure their net worth and determine how much the company has earned from operations during any given period.