For accounting purposes, depreciation is:

• A. The recognition of cash inflows from the sale of assets.
• B. The process of increasing the value of an asset over time.
• C. The systematic allocation of the cost of a tangible asset over its useful life.
• D. The immediate expensing of an asset's cost in the year of purchase.

Answer: (C)

Verified step by step guidance

1. Understand the concept of depreciation: Depreciation is the systematic allocation of the cost of a tangible asset over its useful life. It reflects the wear and tear, obsolescence, or usage of the asset over time.
2. Identify the purpose of depreciation: The goal is to match the expense of using the asset to the revenue it helps generate during its useful life, adhering to the matching principle in accounting.
3. Differentiate depreciation from other concepts: Depreciation is not the recognition of cash inflows, nor is it the immediate expensing of an asset's cost. It also does not involve increasing the value of an asset over time.
4. Learn the methods of depreciation: Common methods include straight-line depreciation, declining balance method, and units of production method. Each method allocates the cost differently based on the asset's usage or time.
5. Apply depreciation in financial statements: Depreciation is recorded as an expense on the income statement and reduces the book value of the asset on the balance sheet.