What is a non-cash accounting expense that reduces the value of an asset?

Depreciation is a non-cash accounting expense that systematically allocates the cost of a tangible asset over its useful life. This accounting principle reflects the decrease in value of an asset as it is used and ages over time. For example, if a company purchases equipment for $10,000 with a useful life of 10 years, it may apply depreciation, reducing the book value of that asset on its balance sheet by an amount each year.

This process does not involve actual cash transactions; instead, it adjusts the value of the asset on paper for accounting purposes, allowing for a more accurate reflection of its current worth in financial statements. This is essential for businesses to understand the true cost of maintaining and using their assets while complying with accounting standards.

In contrast, amortization generally refers to the gradual write-off of intangible assets over time. Interest expense involves the cost of borrowing funds, leading to cash outflows as interest payments are made, and a write-off typically pertains to the removal of an asset from the books due to it being deemed worthless. Understanding these differences clarifies why depreciation is identified as the correct answer to represent a non-cash accounting expense that reduces asset value.