Basically, it acknowledges that assets like equipment, machinery, or vehicles lose value as they are used and as time goes on. Depreciation spreads the cost of the asset over its useful life, which can help businesses manage their cash flow and minimize taxes. Depreciation is not a cash expense, meaning it doesn't require an outflow of cash. Instead, it's an accounting entry that reduces the value of the asset on the balance sheet. It's a non-cash expense that businesses use to reduce taxable income in the current year, which can help reduce their tax burden.