Key takeaways
- Depreciation = (Cost â Salvage) Ãˇ Useful Life.
- Salvage value is what the asset is still worth at the end of its useful life, not necessarily zero.
- The same dollar amount is recorded every single year under this method.
- Multiply yearly depreciation by years passed to find how much value has been used up so far.
In this guide
What is straight line depreciation?
When a business buys equipment, a vehicle, or machinery, that asset loses value over time as it's used. Instead of recording the full cost the moment it's bought, depreciation spreads that cost across the years the asset is expected to be useful. The straight line method spreads it evenly, so the same amount is recorded every year.
Why does straight line depreciation matter?
Spreading an asset's cost over its useful life gives a more accurate picture of a business's yearly expenses than recording the entire cost in the year it was bought, when in reality the asset keeps providing value for years.
A $30,000 delivery van with a 9-year useful life and $3,000 salvage value loses exactly $3,000 in recorded value every year â no more, no less.
The formula
| Symbol | What it means | Example |
|---|---|---|
| Cost | What the asset originally cost to buy | $30,000 |
| Salvage | Expected value at the end of its useful life | $3,000 |
| Useful Life | Years the asset is expected to be used | 9 |
| Depreciation | Amount the value drops each year | $3,000 |
How to calculate straight line depreciation step by step
- 1Subtract the salvage value from the cost. This gives the total depreciable amount â the part of the cost that actually gets used up.
- 2Divide that amount by the useful life in years. The result is the yearly depreciation.
- 3Record the same figure every year. Straight line depreciation never changes from year to year.
- 4Multiply the yearly depreciation by years passed to find accumulated depreciation. Subtract that from the cost for the current book value.
Enter your own asset cost, salvage value, and useful life in the calculator below.
Try it yourself
Pre-filled with the example â change any value.
Common mistakes to avoid
- Assuming the asset is worth $0 at the end. Many assets still have some resale or scrap value â that's the salvage value.
- Mixing up useful life with how long you'll actually keep it. Useful life is an estimate of how long the asset functions well, which may differ from how long you plan to own it.
- Forgetting depreciation stops at salvage value. The asset's recorded value shouldn't drop below the salvage value, even beyond the useful life.
Tips and tricks
- To find current book value partway through an asset's life, multiply yearly depreciation by years passed, then subtract that from the original cost.
- Straight line is the simplest method; other approaches like declining balance depreciate more in earlier years, but straight line is the standard starting point.
- Thinking about how a lump sum of money changes in value over years instead? The future value calculator and present value calculator cover that related idea.
Where you'll use it in real life
- Small business accounting: tracking the recorded value of equipment, vehicles, and machinery over time.
- Budgeting for replacement: knowing when an asset's book value nears its salvage value helps plan for a replacement.
- Comparing purchase options: two assets with different costs and useful lives can be compared on yearly depreciation.
- Basic bookkeeping: straight line depreciation is often the default, simplest method taught in introductory accounting.
Quick summary
Straight line depreciation is (Cost â Salvage) Ãˇ Useful Life â subtract what the asset will still be worth, then spread the rest evenly across its useful life. The same amount is recorded every year. Use the calculator above to check the numbers for your own asset.
Worked example
A business buys a delivery van for $30,000, expects to use it for 9 years, and estimates it will be worth $3,000 in scrap value at the end.
- 01Depreciation = (Cost - Salvage) / Useful Life
- 02Depreciable amount = $30,000 - $3,000 = $27,000
- 03Depreciation = 27000 / 9
- 04Depreciation = $3,000 per year
These numbers are pre-filled in the calculator above.
Frequently asked questions
Why is the salvage value subtracted before dividing?
Because the asset is only expected to lose value down to its salvage value, not to zero. Only the portion of the cost that actually gets used up â cost minus salvage â is spread across the useful life.
What if an asset has no salvage value?
Set salvage to 0. The full cost is then divided by the useful life, giving the maximum possible yearly depreciation.
Is straight line depreciation the only method?
No, other methods like declining balance depreciate more in earlier years and less later. Straight line is the simplest and most common for basic estimates, because it spreads the cost evenly.
How do I find an asset's current book value partway through its life?
Multiply the yearly depreciation by the number of years already passed, then subtract that from the original cost. The result is the asset's current recorded value.
