Question

Which statement correctly describes depreciation in relation to cash payment?

Options

• It is counted only when a machine is bought.

• It is counted only when households buy goods.

• It is counted every year even when no actual cash payment is made in that year.

• It is counted every year only when cash is paid.

Answer 1

Depreciation records the annual loss in value of a capital good. It does not require an actual cash payment in the same year.