An accounting term which refers to the cost of a fixed asset in a business being spread over a fixed period, typically the operating life of that asset. For example, if a business pays R1 million for a piece of machinery and expects it to have a useful life of five years, it will depreciate it at a rate of R200 000 per year (assuming straight-line depreciation). Depreciation is a non-cash expense which lowers the reported earnings of a business, while at the same time increasing cash flow.

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