Straight-line depreciation

Definition

Straight-line depreciation in plain English

Big equipment (a delivery van, a laptop) wears out slowly, so accounting spreads its cost across the years you actually use it instead of counting it all in year one. Straight-line depreciation is the simplest way to do that: you subtract what you expect to sell it for at the end (the salvage value) from what you paid, then split what's left evenly over its useful life. If a van costs $30,000, you'll sell it for $5,000 later, and it lasts 5 years, each year gets (30,000-5,000)/5=$5,000 of expense. Think of buying a $60 annual gym pass and telling yourself it 'cost' $5 a month — same even-slices idea.

Learn these first

• Capital expenditure
• Internal controls

Related Financial Accounting terms

• Accounts receivable
• Accumulated depreciation
• Allowance for doubtful accounts
• Amortization
• Accounting Standards Codification (ASC) 350
• Accounting Standards Codification (ASC) 805
• Book value
• Capital expenditure
• Contingent liability
• Cost of goods sold