Straight-line Depreciation is used to depreciate Fixed Assets in equal amounts over the life of the asset. The basic formula to calculate Straight-line Depreciation is: (Cost – Salvage Value) / Class Life
Example Depreciation Problem
To show the various methods used to calculate depreciation, we will use the following asset for each method. (Units are provided for use in the calculating of Units of Activity depreciation method.)
| Asset 1 | 20xx Ford F350 |
| Asset Name | Vehicles |
| Useful Life | 5 years |
| Cost (Basis) | $40,000 |
| Salvage Value | $2,000 |
| Units: Miles | 100,000 |
How to Calculate Straight Line Depreciation
Straight Line Depreciation spreads the cost recovery (expensing) of an asset evenly over the class life of the asset. The formula to calculate Straight Line Depreciation is:
(Cost – Salvage) / Useful Life = Depreciation Expense
In the case of the first example asset, the Ford F350 truck has a cost of $40,000, a salvage value of $2,000, and a useful life of 5 years.
When we enter those details into the formula for Straight Line Depreciation, we get this:
($40,000 – $2,000) / 5 = $7,600
This means the depreciation expense for the first year of the asset is $7,600.
If the company is tracking its depreciation monthly, the amount of the adjusting entry done each month is $7,600 / 12 = $633.
What is the Journal Entry to Record Straight-line Depreciation?
To record depreciation, an adjusting journal entry is done either once a month or once a year. Generally Accepted Accounting Principles require a monthly entry for those businesses required to follow GAAP. The journal entry to record one month of depreciation expense for this asset is:
| Depreciation Expense | 633 | |
| Accumulated Depreciation | 633 |
For more information on Generally Accepted Accounting Principles, check out this video:
For more examples of Straight Line Depreciation, watch this video:
For more details on calculating depreciation using other methods, check out these articles:
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How to Calculate Straight Line Depreciation
Straight-line Depreciation is used to depreciate Fixed Assets in equal amounts over the life of the asset. The basic formula to calculate Straight-line Depreciation is: (Cost – Salvage Value) /
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