What does the systematic allocation of an asset's cost over its useful life refer to?

The systematic allocation of an asset's cost over its useful life is referred to as depreciation. This accounting method is used to allocate the expense of tangible assets, such as machinery, vehicles, and buildings, over the periods in which they generate revenue. By spreading out the cost of an asset, businesses can better match expenses with the income generated from that asset, providing a more accurate picture of financial performance in each accounting period.

Depreciation recognizes that assets lose value as they age and as they are used in operations. There are various methods for calculating depreciation, including straight-line, declining balance, and units of production, but the core principle remains the same: it helps companies account for the wear and tear on their fixed assets over time. This practice also has tax implications, as it allows businesses to reduce their taxable income by deducting depreciation expenses.

The terms related to other options in the question have different meanings in accounting. Amortization refers to the process of reducing intangible assets over their useful lives. Appreciation is an increase in the value of an asset over time, which is the opposite of depreciation. Revaluation refers to adjusting the book value of an asset to reflect its current market value, which can occur independently of depreciation. Therefore, depreciation is the