What does depreciation refer to in accounting?

Depreciation in accounting refers to the systematic allocation of the cost of a tangible fixed asset over its useful life. It reflects the decrease in value of a company's assets over time due to factors such as wear and tear, obsolescence, and usage. This concept is critical for accurately representing a company's financial position and performance, as it ensures that the income statement reflects the cost of utilizing these assets in generating revenue over time.

By applying depreciation, businesses can match the cost of an asset with the revenue it generates, leading to a more accurate representation of profitability. The process helps in financial reporting and tax calculation since it reduces taxable income by acknowledging the expense associated with asset usage.

Other options do not align with the definition of depreciation. The increase in an asset's market value, immediate expenses for purchasing an asset, or the act of buying long-term assets do not capture the essence of depreciation in accounting.