What is straight-line depreciation?
Under the straight-line method, an asset loses the same amount of value every year. It suits assets that provide roughly equal benefit each year, such as furniture, buildings and many types of equipment.
Formula
Annual depreciation = (Cost − Residual value) ÷ [Useful life](/glossary/useful-life)
Depreciation rate = 1 ÷ Useful life (for example, a five-year life = 20% a year)
Example
A business buys a machine for $50,000 with an expected residual value of $5,000 after nine years.
- Annual depreciation = (50,000 − 5,000) ÷ 9 = $5,000
- Year 1 book value: $45,000
- Year 5 book value: $25,000
- Year 9 book value: $5,000
Journal entry
Each year: debit depreciation expense, credit [accumulated depreciation](/glossary/accumulated-depreciation).
Part-year depreciation
If an asset is bought mid-year, depreciation is usually pro-rated by month, or a policy such as a half-year convention is applied.
Pros and cons
- Pros: simple, predictable and easy to audit.
- Cons: may not reflect assets that lose most value early, such as vehicles or technology, where declining balance can be more accurate.