Reconnect to Lesson 02's capitalization rule and surface the friction point that makes straight-line depreciation necessary
The Van Problem
Sarah Chen just signed the papers on a $30,000 delivery van for TechStart Solutions. Her accountant reminds her that this purchase creates a new problem: how do you record a big asset that will help the business for years to come?
In Lesson 02, you learned that the van is a capital asset — not an expense. That means it goes on the balance sheet, not the income statement. But here is the catch: the van loses value every year it is used. Investors need to see that loss reflected in the financial records.
The van cost $30,000. It will last about 5 years. At the end, Sarah thinks she can sell it for about $5,000. So $25,000 of value will be "used up" over those 5 years. The question is: how much of that $25,000 should count as an expense each year?
Three Numbers, One Problem
$30,000
What TechStart paid for the van
5 years
How long the van will help the business
$5,000
What the van will be worth at the end
The simplest and most common method accountants use is called straight-line depreciation. It spreads the cost evenly across each year of the asset's life. In this lesson, you will learn exactly how it works and why it matters for every financial statement.
Key formula you will master: Book Value = Cost − Accumulated Depreciation