Final answer:
Depreciation is the loss of value of capital equipment due to normal wear and tear over time. It is an important concept in accounting and financial analysis.
Step-by-step explanation:
Depreciation refers to the loss of value of capital equipment that occurs due to normal wear and tear over time.
For example, when a company purchases a piece of machinery, it is considered a capital asset. However, as the machinery is used, it undergoes wear and tear, and its value decreases. This decrease in value is known as depreciation.
Depreciation is an important concept in accounting and financial analysis as it allows companies to accurately reflect the value of their assets over time.