Depreciation is considered what type of expense?

Depreciation is classified as a non-cash expense because it represents the allocation of the cost of a tangible asset over its useful life, rather than an actual outflow of cash during the period it is recorded. Businesses recognize depreciation to account for the reduction in value of their assets over time due to wear and tear, obsolescence, or other factors. This accounting method allows companies to match the cost of the asset to the revenue it generates over multiple periods, reflecting a more accurate picture of financial performance.

In contrast, cash expenses involve direct cash payments during the reporting period. Since depreciation does not involve any cash transaction at the time it is recorded, it is considered a non-cash expense, which can be important for analyzing a company's cash flow and overall financial health. Understanding the nature of depreciation and its categorization assists in proper financial reporting and tax deductions, making it an essential concept for contractors and other professionals in the field.