The accounting term for the gradual reduction of a fixed asset’s value over time is depreciation.
In financial reporting, depreciation usually means allocating the depreciable cost of a tangible long-term asset across the periods that use it. A machine, vehicle, or building may provide benefits for years, so its entire purchase cost is not normally treated as an expense immediately. Instead, depreciation expense is recognized systematically over the asset’s estimated useful life.
The straight-line method spreads cost evenly. Its basic formula is the asset’s cost minus estimated residual value, divided by useful life. Other methods, such as declining balance and units of production, assign more expense to periods of heavier use or earlier years.
Depreciation is often confused with impairment, depletion, and amortization. Impairment is generally an unexpected loss in recoverable value; depletion applies to natural resources such as oil or minerals; amortization usually applies to intangible assets. Depreciation is also a non-cash expense: recording it reduces reported profit and carrying value but does not itself require a current cash payment.