Depreciation
Also called Amortization
Spreading the cost of a long-lived physical asset over its useful life in the accounts, rather than expensing it all at once. Amortization does the same for intangible assets.
Why it matters
Depreciation matters mostly for capital-heavy businesses and for reading financial statements correctly, it is a non-cash expense that lowers profit without touching cash. Software founders touch it rarely, hardware founders often.
For example
A 2 crore machine with a ten-year life is depreciated at 20 lakh a year, a non-cash expense that lowers reported profit without touching cash.
Go deeper
Related terms
Also in Starting Up
See how founders actually handle this on Money, pricing and metrics, part of the Starting Up hub.
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