straight-line depreciation

Imagine you want to share one big cost evenly across several years — the fairest, simplest way is to cut it into equal slices, one for each year, like slicing a loaf of bread into identical pieces. If a machine will help you for five years, you charge one-fifth of its (net) cost in each of those years. No favoritism, no front-loading, no guesswork about which year it works harder. That even, identical-slice approach is straight-line depreciation.

Straight-line depreciation spreads an asset's depreciable cost equally over its useful life. The depreciable cost is the asset's cost minus its salvage value, and the yearly expense is simply that divided by the number of years: annual depreciation = (cost − salvage value) / useful life. For example, a 22,000 asset with a 2,000 salvage value and a 5-year life depreciates by (22,000 − 2,000) / 5 = 4,000 every year. Each year the same 4,000 hits the income statement, and accumulated depreciation grows by 4,000, so book value falls in a straight, predictable line — hence the name.

It is overwhelmingly the most common method in the real world because it is simple, easy to audit, and it keeps reported profit smooth and comparable from year to year. It suits assets that wear out fairly evenly with time, like buildings and office furniture. Its honest limitation is that few assets actually lose value evenly — a new truck loses a lot in its first year — so straight-line can be unrealistic for assets that work hardest early on or that become obsolete suddenly. But for clarity and comparability, its simplicity usually wins.