Which statement about depreciation is true even if not for tax purposes?

• A. Depreciation is a method to increase cash flow from assets.
• B. Depreciation is an allocation of asset cost over its useful life.
• C. Depreciation has no impact on asset valuation.
• D. Depreciation is recorded only for tax purposes.

Answer: (B)

Depreciation is an allocation of asset cost over its useful life. This reflects how the asset’s value and usefulness are consumed month by month as it enables the business to generate revenue. It’s an accounting figure used in financial reporting to match the expense of using the asset with the periods that benefit from that use. This remains true whether or not taxes are involved because it concerns how the asset’s cost is distributed over time in the books, not how tax rules treat the deduction.

Depreciation is a non-cash expense—it reduces reported income and the asset’s carrying value on the balance sheet, but it doesn’t involve a current cash outlay. The only cash effect is the initial purchase (and, in some cases, tax effects if you’re considering tax purposes). So, the correct statement is that depreciation allocates the asset’s cost over its useful life, independent of tax considerations.