If an asset is experiencing a decrease in its monetary value, what is this phenomenon called?

When an asset is experiencing a decrease in its monetary value, this phenomenon is referred to as depreciation. This term is commonly used in accounting and finance to describe the reduction in the value of an asset over time, typically due to wear and tear, usage, or obsolescence.

Depreciation is important for both financial reporting and tax purposes, as it allows businesses to allocate the cost of an asset over its useful life. This method provides a more accurate reflection of an asset's value and the associated costs time.

The concept of depreciation contrasts sharply with appreciation, which denotes an increase in asset value. Amortization refers specifically to the gradual reduction of a loan or intangible asset's value over time, while financing cost relates to the expenses incurred in raising capital. Thus, the recognition of depreciation is crucial for maintaining accurate financial records and understanding the true value of assets over time.