What calculation method is used in the straight-line depreciation method?

The straight-line depreciation method calculates depreciation by spreading the cost of an asset evenly over its useful life. This is achieved using the formula that subtracts the residual value (also known as salvage value) from the original cost, and then dividing that result by the estimated useful life of the asset.

The formula essentially determines how much value the asset will lose each year during its life, accounting for the amount it should have left when it is no longer in use (the residual value). By dividing the depreciable amount (original cost minus residual value) by the estimated useful life, you arrive at a consistent annual depreciation expense, which is why this method is favored for its simplicity and predictability in financial reporting.

Using this approach, businesses can better estimate expenses tied to asset usage, leading to a more accurate representation of profitability over time. This method is straightforward and aligns well with financial accounting principles, which seek to match expenses with the revenue they help generate within the same period.