Depreciation - Overview

You've probably heard the term depreciation before and you may even have already covered it your accounting class.  It's very important, however, to really understand the concept as opposed to simply crunch some numbers and calculate what depreciation is.

In order to truly understand something, the best way to approach it is to visualize it with the help of an example.  

Here goes: Assume you bought a brand new laptop (say... the newest MacBook Air!) and you paid $1500 for it.  You estimate that you will use this computer for 5 years.  Every year subsequent the purchase, the laptop will be worth much less than $1500 because it will be used by you and it won't be new anymore.  If, for example, a year after you bought it the laptop is worth $1200, you can easily say that it lost $300 in value.  This $300 can then be classified as "depreciation".

There are many ways to calculate depreciation, and that's a topic for a separate blog entry.  For now, make sure you understand the concept itself - it's going to come up in your classes and in "real life" after you graduate :)