Which term describes the process of systematically reducing the cost of assets over their useful life?

The term that describes the process of systematically reducing the cost of assets over their useful life is depreciation. This accounting method allows businesses to allocate the cost of tangible fixed assets, such as machinery, vehicles, and buildings, over the period in which they are used to generate revenue. By doing so, it reflects the asset's consumption, wear and tear, or obsolescence, ensuring that financial statements more accurately represent the company’s expenses and profitability over time.

While amortization, which pertains to the spreading out of costs for intangible assets like patents or copyrights, might seem similar, it is specifically designated for intangible assets rather than the tangible physical assets addressed in depreciation. Accrual refers to the accounting method where revenue and expenses are recorded when they are earned or incurred, regardless of when cash transactions occur, and does not relate to asset cost allocation. Depletion pertains to the reduction of the value of natural resources, such as minerals or oil, and is also distinct from the process of depreciating tangible fixed assets. Therefore, depreciation is the correct term for this context of asset cost reduction over time.