What is Straight-Line Depreciation?
The simplest depreciation method - the same expense every period across an asset useful life.
Straight-Line Depreciation: definition
Straight-line is the most common depreciation method because it is simple and predictable. You take the asset cost, subtract its estimated salvage (residual) value, and divide by useful life in years. The result is a constant annual charge that steadily reduces the asset carrying value on the balance sheet while recognizing expense on the income statement.
Straight-line depreciation
Annual Depreciation = (Cost − Salvage Value) ÷ Useful Life
The same amount is expensed each full year. Partial first and last years are prorated by the months the asset is in service.
How Fintra handles it
When you capitalize an asset in Fintra, the AI sets up a straight-line schedule from the cost, salvage value, and useful life, then posts the monthly depreciation entry automatically - no manual reversing or spreadsheet tracking. The fixed-asset register ties to the ledger, so accumulated depreciation and net book value always reconcile.
- Depreciation schedule generated at capitalization from cost, salvage, and life
- Monthly depreciation posts automatically; net book value stays current
- Alternative methods (declining balance) available where they fit better
Worked example
| Year | Depreciation | Accumulated | Net book value |
|---|---|---|---|
| 1 | $9,000 | $9,000 | $41,000 |
| 2 | $9,000 | $18,000 | $32,000 |
| 3 | $9,000 | $27,000 | $23,000 |
| 4 | $9,000 | $36,000 | $14,000 |
| 5 | $9,000 | $45,000 | $5,000 |
Frequently asked questions
How do you calculate straight-line depreciation?
Subtract salvage value from the asset cost to get the depreciable base, then divide by useful life in years. For example, a $50,000 asset with $5,000 salvage and a five-year life depreciates $9,000 per year. Prorate the first and last years for months in service.
What is salvage value?
Salvage (or residual) value is the estimated amount an asset will be worth at the end of its useful life. It is subtracted from cost so you only depreciate the portion of value the business expects to consume, not the amount recoverable at disposal.
When should you use straight-line instead of accelerated depreciation?
Straight-line suits assets that deliver even value over time - buildings, furniture, software - and is preferred for its simplicity and steady expense. Accelerated methods like declining balance suit assets that lose value or productivity faster early on, such as vehicles and technology.
Does straight-line depreciation affect cash flow?
Not directly - depreciation is a non-cash expense, so it lowers reported profit and taxable income without moving cash. On the cash flow statement it is added back to net income under the indirect method. Its cash benefit comes through lower taxes.
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