An accounting method that spreads an asset’s cost over its useful life.
For example, a $60,000 delivery van is depreciated on a straight-line basis over 5 years, reducing its book value by $12,000 per year. This $12,000 annual depreciation charge reduces taxable income without any cash going out the door.
Why it matters: While it's a non-cash expense, it provides a massive tax shield that keeps real cash inside the business.
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