Depreciation

Expanded Explanation: Depreciation is the accounting process of allocating the cost of a tangible asset over its useful life. It’s used to account for declines in the value of fixed assets over time due to use and wear and tear. Depreciation helps businesses generate revenue from an asset while expensing a portion of its cost each year it is in use.

Potential Issues: Incorrect calculation of depreciation can lead to inaccurate financial statements, affecting profit margins and tax liabilities. Over-depreciating assets can artificially lower profits, while under-depreciating can inflate them.

Example: Your food truck, valued at $20,000 with a five-year useful life, would depreciate $4,000 annually.