Depreciation

The accounting charge that spreads the cost of physical assets, such as machines, buildings and servers, over the years they're used. Like amortization, it lowers profit without any cash going out that year.

Simple example

A company pays $500 upfront for a machine that lasts five years. It records $100 of depreciation each year, and the machine's value on the books falls from $500 to zero.

$500Bought$400Year 1$300Year 2$200Year 3$100Year 4$0Year 5Value on the books falls$100 each year
Made-up numbers, for illustration only.