Straight Line Depreciation: Formula, Schedule, and Journal Entry

Straight line depreciation allocates an asset's depreciable amount evenly over its useful life. Subtract estimated residual value from cost, divide by useful life, and record the same full-year expense each year. The method fits an asset whose economic benefits are expected to be consumed at a roughly even rate.

What each input means

Cost is more than the supplier's sticker price when other expenditures are necessary to bring the asset to the location and condition required for use. A problem may include delivery, installation, and testing in capitalized cost while excluding routine training or maintenance. Follow the accounting framework and facts given rather than assuming every cash payment belongs in the asset.

Residual value, sometimes called salvage value, is the estimated value remaining when the useful life ends. It reduces the amount to depreciate. If residual value is zero, the full asset cost is depreciable.

Useful life is an accounting estimate of how long the entity expects to use the asset or obtain production from it. It is not automatically the asset's physical life or a tax recovery period.

These estimates should describe expected consumption, not force a desired expense. Under IAS 16, useful life and residual value are reviewed at least at each financial year-end, and a change in estimate is handled prospectively.

Worked example

A print shop buys a finishing machine for $55,900 and pays $1,480 for delivery and $1,320 for installation. Capitalized cost is therefore $58,700. The shop expects to use the machine for six years and sell it for $4,700 at the end.

The depreciable amount is $54,000: $58,700 cost less $4,700 residual value. Dividing $54,000 by six gives annual straight line depreciation of $9,000. The annual rate is one-sixth, or 16.6667%, applied to the $54,000 depreciable amount.

The schedule proves two totals. Six years of $9,000 expense equal the $54,000 depreciable amount, and final book value equals the $4,700 residual value. Depreciation does not attempt to predict what a buyer would actually pay for the machine each year. It allocates cost according to the expected consumption pattern.

The depreciation journal entry

At each full year-end, debit Depreciation Expense for $9,000 and credit Accumulated Depreciation for $9,000. Accumulated Depreciation is a contra-asset account, so it reduces the machine's carrying amount while preserving the original $58,700 cost in the asset account.

The entry does not credit Cash because buying the machine and depreciating it are separate events. Cash changed when the asset was acquired. Depreciation later recognizes part of the capitalized cost as expense. It is often called a noncash expense for that reason, though the original asset purchase did require cash or another form of consideration.

Partial-year depreciation

If the machine is ready for use on May 1 and the entity uses months for its book-depreciation convention, eight months of depreciation are recorded through December 31. Monthly depreciation is $750 because $9,000 divided by 12 is $750. The first-year expense is then $6,000.

Do not automatically count from the invoice date. Depreciation begins when the asset is available for use under the applicable accounting framework. A textbook problem may specify a full-month, half-year, or exact-day convention, so state the convention before prorating. U.S. tax depreciation follows statutory MACRS rules and conventions; a simple book-depreciation fraction is not automatically the tax deduction.

When straight line is appropriate

The method is appropriate when consumption is expected to be even or when another pattern cannot be determined reliably. Office furniture, leasehold improvements, and buildings are common classroom examples, but the facts control. A machine whose output can be measured directly may fit units-of-production better. Equipment that provides more benefits when new may fit an accelerated method.

IAS 16 requires the depreciation method to reflect the pattern in which future economic benefits are expected to be consumed and requires periodic review of that method. Straight line is not correct merely because it is easy. It is correct when equal allocation reasonably represents the pattern.

Common mistakes

Forgetting residual value. Straight line applies to cost minus residual value, not always to full cost.

Using accumulated depreciation as the annual expense. Annual expense is one period's allocation. Accumulated depreciation is the total of all periods to date.

Treating book value as market value. The carrying amount follows the cost allocation and impairment rules; it is not a valuation estimate of a resale price.

Depreciating below residual value. In the unchanged-estimate example, total depreciation stops at $54,000 and book value stops at $4,700.

Mixing book and tax rules. Financial reporting estimates useful life and consumption pattern. U.S. tax calculations may require MACRS recovery periods, methods, and conventions described by the IRS.

Starting before the asset is ready. The relevant date is when the asset is available for use, not necessarily when it was ordered or paid for.

Changes in estimates and disposal

Residual value and useful life are estimates, not facts frozen on the purchase date. If the shop revises the remaining useful life or residual value after year two, it does not normally rewrite the depreciation already reported. Instead, calculate current book value, subtract the revised residual value, and allocate the remaining depreciable amount over the revised remaining life. This prospective treatment keeps the schedule tied to information available at each reporting date.

Disposal is a separate calculation. First record depreciation through the disposal date under the required convention. Then remove both the asset's original cost and its accumulated depreciation. Compare sale proceeds with the updated book value to find a gain or loss. A gain does not reverse prior depreciation expense; it reports that proceeds exceeded carrying amount at disposal.

Component depreciation may also matter for a significant asset whose parts have different useful lives. For example, a building shell and a major roof may be depreciated separately even though they were acquired together. One straight line rate for the entire purchase can misstate the pattern when significant components are replaced at different times. The basic formula remains the same for each component, but each uses its own cost allocation, residual value, and useful life.

By the FinanceBrain Team · Last verified July 12, 2026 · How we produce and verify articles