How to Calculate Straight Line Depreciation
Depreciation is an accounting method used to allocate the cost of a physical, tangible asset over its useful lifespan. Instead of writing off the entire cost of an expensive piece of equipment or vehicle in the year it was purchased, businesses spread the expense to align costs with the revenues the asset generates.
The straight line depreciation method is the simplest and most widely used method to compute this write-off schedule. Under this method, the asset loses an equal amount of value every year of its operational life.
The straight line depreciation formula is:
Annual Depreciation Expense = (Asset Cost - Salvage Value) / Useful Life
Let's walk through an example:
If your business purchases a delivery van for $25,000, plans to sell it for scrap/salvage for $5,000 at the end of its utility, and estimates its useful life to be 5 years:
- Depreciable Cost: $25,000 - $5,000 = $20,000
- Annual Depreciation: $20,000 / 5 years = $4,000 per year
- Monthly Depreciation: $4,000 / 12 = $333.33 per month
Use our interactive calculator to adjust cost baselines and build the exact depreciation ledger for your taxes and bookkeeping.
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