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Straight-line depreciation spreads the cost of a fixed asset evenly across its useful life, expensing the same amount each year. The formula is (cost minus salvage value) divided by useful life in years. It is the most widely used depreciation method in financial reporting because it is simple, predictable, and matches the cost of a long-lived asset to the periods that benefit from it. A $12,000 machine with a five-year life and no salvage value depreciates $2,400 a year, every year, until it is fully written down.
Depreciation is not about market value or cash. The cash already left the business when you bought the asset. Depreciation is the accounting mechanism that moves that cost onto the income statement gradually, so profit in any single year is not distorted by a large one-time purchase.
What is the straight-line depreciation formula?
The straight-line depreciation formula is annual depreciation equals the asset's cost minus its salvage value, divided by its useful life in years. Cost is what you paid to acquire and ready the asset, including freight and installation. Salvage value is what you expect it to be worth at the end of its life. Useful life is how many years the asset will serve the business.
| Input | What it means | Example |
|---|---|---|
| Cost | Purchase price plus freight and setup | $12,000 |
| Salvage value | Expected worth at end of life | $0 |
| Useful life | Years the asset will be used | 5 years |
| Annual depreciation | (Cost minus salvage) / life | $2,400 |
The depreciable base is cost minus salvage value, not cost alone. If that machine had a $2,000 expected salvage value, the base would be $10,000 and annual depreciation would be $2,000 instead of $2,400.
How do you calculate straight-line depreciation?
Calculate straight-line depreciation in three steps. Subtract salvage value from cost to get the depreciable base. Divide the base by the useful life to get the annual expense. Record that same amount each year until accumulated depreciation equals the depreciable base. In the final year you stop, leaving the salvage value as the asset's remaining book value.
Take a $30,000 delivery van with a $6,000 salvage value and an eight-year life. The depreciable base is $24,000, and $24,000 divided by eight years is $3,000 of depreciation each year. After eight years, accumulated depreciation reaches $24,000 and the van sits on the books at its $6,000 salvage value. If you place an asset in service partway through a year, you prorate the first year by the number of months in use.
What is the journal entry for straight-line depreciation?
The journal entry for depreciation debits depreciation expense and credits accumulated depreciation, a contra-asset account, for the annual amount. Using the van above, each year you debit depreciation expense $3,000 and credit accumulated depreciation $3,000. The expense hits the income statement and reduces profit, while accumulated depreciation builds up on the balance sheet and reduces the asset's carrying value.
Because accumulated depreciation is a contra-asset, the balance sheet shows the asset at cost with the accumulated depreciation subtracted below it to reach net book value. That is why depreciation shows up on both the income statement and the balance sheet in every set of financial statements you prepare. For the broader mechanics of recording entries like this, see our guide to the accounts payable journal entry.
Straight-line vs declining balance depreciation
The difference between straight-line and declining balance depreciation is timing. Straight-line expenses the same amount every year. Declining balance is an accelerated method that expenses more in the early years and less later, matching assets that lose most of their value up front, like computers and vehicles. Both methods write off the same total cost over the asset's life; they only differ in how fast.
| Straight-line | Declining balance | |
|---|---|---|
| Yearly expense | Equal each year | Higher early, lower later |
| Best for | Assets used evenly over time | Assets that lose value fast |
| Complexity | Simplest to apply | More calculation each year |
| Book impact | Steady, predictable profit | Lower early profit |
Tax depreciation follows its own rules. In the United States, businesses depreciate most assets for tax purposes under MACRS, which uses accelerated schedules, and may elect bonus depreciation or Section 179 to expense assets immediately. Book depreciation and tax depreciation are often different numbers on purpose, which is why fixed-asset records track both.
When should you use straight-line depreciation?
Use straight-line depreciation when an asset delivers roughly even benefit across its life and you want simple, predictable financial statements. It fits buildings, furniture, office equipment, and most machinery. Choose an accelerated method instead when an asset genuinely loses more value or usefulness in its early years, or when you want to defer tax by front-loading the expense.
Whichever method you pick, apply it consistently and document the useful life and salvage assumptions so the numbers are defensible in an audit.
Common straight-line depreciation mistakes
A few errors show up again and again in fixed-asset schedules. The most common is forgetting salvage value and depreciating the full cost, which overstates the annual expense and eventually drives book value below what the asset is really worth. The second is failing to prorate the first year: an asset placed in service in October should only carry three months of depreciation that year, not a full twelve. The third is continuing to depreciate an asset after it is fully written down, which understates profit and inflates accumulated depreciation past the depreciable base.
A subtler mistake is treating repairs as part of the asset cost. Routine maintenance that keeps an asset running is an expense, while an improvement that extends its useful life or capacity is capitalized and added to the depreciable base, which resets the schedule. Getting that line right keeps both the expense and the asset value honest.
Straight-line depreciation and your fixed-asset records
Depreciation is only as reliable as the asset data behind it. Each asset needs its cost, in-service date, useful life, salvage value, and method recorded so the schedule runs correctly year after year. Keeping that in a maintained fixed asset register is what stops assets from being depreciated past their base or dropped from the books entirely.
The upstream decision matters too. Before you depreciate anything, you have to decide whether a purchase is a capital asset or an immediate expense, which our guide to capitalizing versus expensing walks through. Get the capitalization call right, record the asset cleanly, and straight-line depreciation becomes a routine annual entry rather than a year-end reconstruction. Handling the invoices behind those asset purchases inside your accounts payable software keeps cost, freight, and setup charges captured accurately from the start.
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