Straight-line depreciation – What is straight-line depreciation?

Straight-line depreciation is a method of calculating depreciation whereby an asset is expensed consistently throughout its useful life.

Debitoor invoicing software automatically applies straight-line depreciation to your fixed assets, making it easier than ever to manage business expenses. Try free for 7 days.

Under the straight-line method of depreciation, the cost of a fixed asset is spread evenly for each year that it is useful, functional and profitable. As such, the depreciation expense recorded on an income statement is the same each year.

The straight-line method is the most straightforward approach to calculating depreciation or amortisation. Whilst there are several other depreciation methods, the straight-line approach is the easiest to understand and is suitable for the needs of small businesses and freelancers.

How to calculate straight-line depreciation

1. Work out the initial purchase price or acquisition cost of the fixed asset.
2. Calculate the estimated useful life of the asset – this is how many years the asset is expected to remain functional and fit-for-purpose.
3. Subtract the estimated salvage value of the asset from its initial cost – this will give you the depreciable asset cost
4. Divide the depreciable asset cost by the number of years in the asset’s useful life – this will give you the amount of annual depreciation.

The formula for straight-line depreciation is:

Straight-line depreciation = (cost of asset – estimated salvage value) ÷ estimated useful life of asset

Example of straight-line depreciation

A business purchases some machinery for £5,000. The machinery has an estimated salvage value of £1,000 and an expected useful life of ten years.

Using the straight-line depreciation formula, the business works out that the asset depreciates by £400 per year: £400 = (£5,000– £1,000) ÷ 10

Straight-line depreciation in Debitoor

Whenever you create a new expense with Debitoor invoicing software, you will be given the option of marking it as an asset. If you mark the expense as an asset, you will then be prompted to enter an estimated useful live and residual value.

Using the straight-line method of depreciation, Debitoor will automatically calculate and record the annual depreciation cost of your asset – making it easier than ever to keep track of your business expenses.