Spreading the cost of an asset and the loss of its value over time describes which accounting concept?

• A. Contra asset
• B. Cost of goods sold (COGS)
• C. Depreciation
• D. Gross profit margin

Answer: (C)

Depreciation is the accounting process of spreading the cost of a long‑term asset and the decline in its value over its useful life. By allocating the asset’s cost over the periods that benefit from its use, you match expense to revenue, which is the essence of the matching principle. This process records a depreciation expense on the income statement and reduces the asset’s carrying value on the balance sheet through a contra asset account (accumulated depreciation). It’s different from cost of goods sold, which covers the costs of inventory sold in the period, and from gross profit margin, which is a profitability measure (sales minus COGS). The use of a contra asset like accumulated depreciation is part of how depreciation is tracked, but the concept described is depreciation itself.