What Is Straight-Line Depreciation? A Beginner's Guide
What Is Straight-Line Depreciation? A Beginner's Guide Introduction Straight-line depreciation is one of the most commonly used methods in accounting to allocate the cost of an asset evenly over its useful life. Understanding this method is essential for accurate financial reporting and tax planning. What Is Straight-Line Depreciation? Straight-line depreciation spreads the expense of an asset evenly across each year of its useful life. It is simple to calculate and easy to apply, making it popular among businesses of all sizes. How to Calculate Straight-Line Depreciation The formula for straight-line depreciation is straightforward: Depreciation Expense = (Cost of Asset - Salvage Value) ÷ Useful Life Example: If you purchase equipment for $10,000, expect it to have a salvage value of $1,000, and a useful life of 5 years, the annual depreciation would be: ($10,000 - $1,000) ÷ 5 = $1,800 per year When to Use Straight-Line Depreciation For assets that provide co...