Depreciation is defined as

Depreciation is defined as

• A. An increase in the asset's market value
• B. A method of recording cash payments as they occur
• C. The recognition of all asset values at historical cost
• D. The systematic allocation of the cost of a tangible asset over its useful life

Answer: (D)

Depreciation is the systematic allocation of the cost of a tangible asset over its useful life. This means you spread the asset’s purchase price over the periods that benefit from it, rather than expensing the entire cost upfront. It reflects wear and tear, aging, and obsolescence, and it aligns with the matching principle by pairing a portion of the asset’s cost with each period’s revenues. It’s a non-cash expense—the cash outlay happens when the asset is purchased, not when depreciation is recorded. The other options don’t fit: depreciation doesn’t measure changes in market value, it isn’t simply about recording cash payments as they occur, and it doesn’t record all asset values at historical cost in full—the cost is allocated over time, reducing the asset’s book value gradually.

Depreciation is the systematic allocation of the cost of a tangible asset over its useful life. This means you spread the asset’s purchase price over the periods that benefit from it, rather than expensing the entire cost upfront. It reflects wear and tear, aging, and obsolescence, and it aligns with the matching principle by pairing a portion of the asset’s cost with each period’s revenues. It’s a non-cash expense—the cash outlay happens when the asset is purchased, not when depreciation is recorded. The other options don’t fit: depreciation doesn’t measure changes in market value, it isn’t simply about recording cash payments as they occur, and it doesn’t record all asset values at historical cost in full—the cost is allocated over time, reducing the asset’s book value gradually.