What is the systematic allocation of the cost of a tangible asset over its useful life called?

The systematic allocation of the cost of a tangible asset over its useful life is called depreciation. This process reflects the wear and tear, deterioration, or obsolescence of an asset, allowing businesses to match the asset's cost as an expense with the revenue it generates over time. Depreciation is particularly relevant for physical assets such as machinery, buildings, and vehicles, where the value and utility decrease as they are used in operations.

This method of expense recognition is crucial for accurate financial reporting and tax purposes, as it provides a clearer picture of a company's financial health by properly aligning costs with income generated in the same periods. Depreciation helps businesses conserve cash flow by spreading the expense of a significant investment over multiple years, rather than recognizing the entire cost in the year of acquisition.

In contrast, other terms like capitalization refer to the process of recording an asset on the balance sheet, amortization typically deals with intangible assets, and appreciation reflects an increase in an asset's value, which does not apply in this context.