straight-line method

Thân thiện

A graph shows depreciation calculated using the straight-line method.

Definition

Noun: * (Accounting) A method of calculating depreciation by taking an equal amount of the asset's cost as an expense for each year of the asset's useful life. This is a systematic approach to allocating the cost of a tangible asset over its estimated useful life. The depreciation expense is the same for each accounting period.

Usage

The straight-line method is used in financial accounting and reporting to spread the cost of a capital asset evenly over the years it is expected to be used. It is the simplest and most commonly used depreciation method. * When preparing financial statements, a company must choose a depreciation method, such as the straight-line method. * To calculate depreciation using the straight-line method, you subtract the asset's salvage value from its cost and then divide by its useful life.

Examples

• For a machine costing $10,000 with a 5-year life and a $2,000 salvage value, the straight-line method yields an annual depreciation expense of $1,600. (($10,000 - $2,000) / 5 years = $1,600)
• Small businesses often prefer the straight-line method for its simplicity and consistent expense recognition.
• The accountant recommended using the straight-line method for the new office furniture.

Advanced Usage

• "To apply the straight-line method": This phrase describes the action of using this specific calculation.
  • The firm applies the straight-line method to all its property, plant, and equipment.
• "Straight-line depreciation": This is the resulting expense amount or the process described by the method. (Note: This is a related term, not the target phrase itself).
  • The annual straight-line depreciation for the vehicle is $3,000.

Variants and Related Words

• Straight-line depreciation (n): The depreciation expense calculated by the straight-line method.
• Accelerated depreciation method (n): A contrasting method where more depreciation is recognized in the early years of an asset's life (e.g., declining balance method).
• Units-of-production method (n): Another depreciation method based on actual usage or output rather than time.

Synonyms

• Fixed-installment method
• Linear depreciation method

Antonyms

• Accelerated depreciation method
• Reducing balance method

Học thuật

Noun

1. (accounting) a method of calculating depreciation by taking an equal amount of the asset's cost as an expense for each year of the asset's useful life

Từ đồng nghĩa

• straight-line method of depreciation