Final answer:
The process of spreading out the cost of an asset over its useful life is known as depreciation, which fits the context of the question. Depreciation allows matching the asset's expense with the revenue it generates.
Step-by-step explanation:
The process of taking the value of an asset and spreading out its cost over a period of time that is consistent with the accounting practices of a company is known as depreciation. This method is typically used for tangible assets like machinery, vehicles, or buildings. Depreciation allows for the expense of the asset to be distributed over its expected life, matching the cost of the asset with the revenue it generates.
For example, if a business purchases a piece of machinery for $100,000 and it is expected to be used for 10 years, the company might depreciate it at $10,000 per year, reflecting the usage and wear of the machinery over its useful life. This is different from a write-off, which is a deduction in the value of earnings by the amount of an expense or loss. When a company sells loans, like a 30-year mortgage, this creates a financial asset that is measured at present value by estimating what another party is willing to pay for it in the primary loan market or the secondary loan market.