What is the term for the decrease in value of an asset due to usage or the passage of time?

Depreciation is the term used to describe the decrease in value of an asset over time, primarily because of wear and tear from usage, obsolescence, or the passage of time. This concept is particularly important in accounting and financial management, as it affects how an asset is valued on financial statements and impacts financial decision-making.

When assets are used, they typically lose their value, and depreciation accounts for this loss, allowing businesses to allocate the cost of an asset over its useful life. This systematic reduction of value helps in assessing the actual current worth of an asset and is essential for determining profitability and return on investment.

Deflation and inflation, on the other hand, refer to the general price levels in the economy. Deflation means a decrease in the general price level of goods and services, while inflation refers to an increase in those price levels. Neither of these terms specifically addresses the value change of a particular asset due to its usage or time, making them unsuitable in this context. The correct choice, depreciation, directly relates to the asset management and financial practices in engineering and business.