Depreciation is the spreading out the original cost over the estimated life of a fixed asset such as a plant and equipment. There are three common used methods in depreciation: 1.) straight-line depreciation; 2.) accelerated depreciation; and 3.) double declining balance.
When a company purchases an asset such as plant and equipment, there is a decline in economic potential of limited life assets originating from wear and tear. This is due to natural deterioration. However, maintenance on that asset may reverse or counterbalance the wear and deterioration.
One fact about deprecation is that it reduces taxable income.