Financial Education

There are two basic ways to record depreciation: straight line and accelerated.

he most common estimation method for financial reporting purposes is the straight-line method. In using this method, the cost of the asset (less any salvage value) is divided by its useful life. This amount is then depreciated, or shown as used up, each period. For our example, the straight-line depreciation expense would be $100,000 per year ((450,000-50,000)/4):

The total expense of $400,000 is thus spread evenly (in a straight line) over the useful life of the machine.

For more information, see all articles on: Accounting, Financial Statement Analysis, Fundamental Analysis

See also:

Accelerated Depreciation

What is Depreciation and Amortization Expense?

Estimating the Average Age of a Company’s Assets

Determining the Average Useful Life of Assets

Estimating the Average Remaining Useful Life of a Company’s Assets