Which statement best explains 'depreciation'?

Depreciation refers to the process of allocating the cost of a tangible asset, such as machinery, buildings, or vehicles, over its useful life. This accounting method recognizes that assets lose value as they are used and as time progresses, allowing businesses to spread the expense of the asset over the period it is expected to generate revenue. This systematic approach provides a more accurate representation of an entity's financial status by matching the expense of using the asset with the revenue it helps produce.

The other options point to different financial concepts. The first option describes appreciation, which is the increase in value of an asset over time. The third option relates to cash flow issues but does not encapsulate what depreciation specifically refers to, while the fourth focuses on intangible assets, which are subject to different accounting treatments like amortization instead of depreciation. This is why the statement about allocation of the cost over an asset's useful life captures the essence of what depreciation is best.