Reflect on confidence, connect to the business problem, and preview double-declining balance
What You Now Know About Straight-Line Depreciation
Sarah closes her depreciation schedule with confidence. She can now explain exactly how the van's cost flows through her financial statements over five years — and why that matters to anyone reading her books.
The Formula
Annual Expense = (Cost − Salvage Value) ÷ Useful Life
The Enduring Relationship
Book Value = Cost − Accumulated Depreciation
The Pattern
Straight-line produces the same expense every year. Accumulated depreciation grows steadily. Book value shrinks steadily until it reaches salvage value.
The Business Reason
Matching principle: spread the cost of an asset across the years it helps generate revenue. This gives a fair picture of profitability each year.
What Comes Next
Straight-line is the simplest method — and the most commonly used. But it is not the only option. Some assets lose value faster in their early years. A brand-new delivery van, for example, loses more value in Year 1 than in Year 5. For those situations, accountants use accelerated depreciation methods.
In the next lesson, you will learn the double-declining balance (DDB)method — an accelerated approach that records higher depreciation in early years and lower depreciation in later years.
DDB ignores salvage value in the initial calculation
The depreciation rate is double the straight-line rate
Book value can never fall below salvage value
You will compare DDB and straight-line side by side
Why method choice matters: The depreciation method a company chooses affects reported profit, tax liability, and how investors perceive the business. In Lesson 04, you will see how the same asset produces very different financial pictures under different methods.