What term describes the reduction in the value of an asset over time?

Depreciation is the term that describes the reduction in the value of an asset over time, particularly in the context of tangible assets like vehicles, machinery, and buildings. This decrease in value occurs due to factors such as wear and tear from use, obsolescence, and the passage of time. In accounting, depreciation is an essential concept because it allocates the cost of an asset over its useful life, allowing businesses to match the asset's cost with the revenue it helps generate over time.

Inflation refers to the general rise in prices and the decrease in purchasing power of money, which does not directly relate to the value of a specific asset. Appreciation is the opposite of depreciation, indicating an increase in an asset's value over time. Amortization is a method used to gradually pay off a debt or an intangible asset over a set period, reflecting a scheduled reduction in its value but not in the context of general asset valuation.