What does 'depreciation' refer to in accounting?

Depreciation in accounting specifically refers to the allocation of the cost of a tangible asset over its useful life. This is done to match the expense of using the asset with the revenues generated by it during that period. By spreading the cost over the asset's useful life, a business can accurately reflect the asset's diminishing value as it is used, ensuring that the financial statements provide a true and fair view of the company’s financial position.

This method recognizes that tangible assets, such as machinery or buildings, lose value over time due to wear and tear, obsolescence, or other factors. By allocating this cost systematically, businesses can maintain a balance between the costs incurred through asset use and the income earned from them, which is crucial for effective financial reporting and managing the company's profitability.

The other statements do not accurately describe depreciation: revaluation focuses on adjusting the asset's book value in light of current market conditions, an increase in asset value would indicate appreciation rather than depreciation, and total expenditures for purchasing assets relate to capitalization rather than the concept of depreciation itself.