In accounting, what is the primary function of depreciation?

The primary function of depreciation is to account for the wearing out of an asset over time. Depreciation reflects the gradual loss of value of a tangible fixed asset due to wear and tear, usage, or obsolescence. As an asset is used in the production of goods or services, its economic usefulness diminishes, and depreciation helps recognize this decrease in value in the company's financial statements systematically over the asset's useful life.

This accounting practice provides a more accurate picture of a company's financial health, ensuring that income is not overstated and expenses, which include depreciation, are properly reflected in the accounts. This allocation of the asset's cost matches the asset's benefits with the revenue generated, aligning with the matching principle in accounting.