What does the term 'residual value' refer to in asset management?

The term 'residual value' in asset management refers to the expected value at the end of an asset's useful life after taking into account depreciation. This is important for financial planning and accounting because it helps businesses estimate how much they can expect to recover when they sell or dispose of the asset at the end of its useful life. Accurately estimating residual value is crucial for calculating depreciation expenses, as these expenses are often based on the initial cost of the asset minus its expected residual value. Understanding residual value helps organizations make informed decisions about their assets and assists in budgeting and financial reporting.