Depreciation describes the amount of new capital that is added to an economy.
In accounting, depreciation is a term that refers to two aspects of the same concept. The first is the actual reduction in the fair value of assets such as assets. For example, annual depreciation of an asset is used to allocate the cost of a tangible or physical asset over its useful life.
Depreciation indicates how much of an asset's value has been used. It allows companies to generate income from the assets they own by making payments over a period of time.
From an accounting perspective, depreciation is defined as the systematic reduction of the recorded cost of a fixed asset until its value is reduced to zero or a negligible level. Examples of fixed assets are buildings, furniture, office equipment, machinery, etc.
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