What is straight-line depreciation? Formulas, examples + pros and cons

Owning a company means investing time and money into assets that help your business run smoothly. With nearly 37% of business owners starting with less than $1,000, according to the QuickBooks Entrepreneurship in 2025 survey, it’s essential to track how those early investments lose value over time. 

Assets like computers and vehicles can be essential to achieving high business performance, but how do you anticipate and calculate when these investments begin to lose their value? The straight-line depreciation method. 

The method can help you predict your expenses and determine when it’s time for a new investment and prepare for tax season. Learn how to calculate straight-line depreciation, when to use it, and what it looks like in the real world.

Jump to:

The straight-line depreciation formula

How to calculate straight-line depreciation

When to use straight-line depreciation

Is straight-line depreciation the right method?

Accelerated depreciation vs. straight-line depreciation

Real-world example of straight-line depreciation

Other depreciation methods to consider

Boost productivity and enhance profitability

Straight line depreciation FAQ

The straight-line depreciation formula

The straight-line depreciation formula measures how much value an item loses over time. The method assumes a fixed asset will lose the same amount of value each year of its useful life until it reaches its salvage value. Here’s what the straight-line depreciation formula looks like:

Annual depreciation expense = (purchase price − salvage value) / useful life

To help you better understand this formula, let’s define a few key terms:

• Depreciation: The decrease in a physical asset’s worth.
• Fixed asset: A long-term tangible piece of property or equipment a company owns and uses to produce revenue.
• Useful life: An accounting measure of the number of years an asset could remain in operation and help generate revenue.
• Salvage value: The estimated value of an asset at the end of its useful life. Also called scrap value or residual value, salvage value calculates an asset’s annual depreciation cost.
• Purchase price: The total cost of an asset, including shipping, taxes, and any applicable fees.

By estimating depreciation, companies can spread the cost of an asset over several years. The straight-line depreciation method is a simple and reliable way to calculate depreciation.

How to calculate straight-line depreciation

Now that you know what straight-line depreciation is and why it’s important, let’s look at how to calculate it. 

Step 1: Calculate the asset's purchase price

The purchase price refers to the total cost of an asset. You can calculate an asset's purchase price by adding the following figures together:

• Price: The original price you purchased the asset for
• Shipping: Any fees that relate to the delivery of your asset
• Taxes: An additional fee that reflects a percentage of the asset’s price
• Maintenance: Costs associated with maintaining the asset
• Any applicable fees: Anything that adds to the cost of the asset

After you gather these figures, add them up to determine the total purchase price. Then, it’s time to calculate the asset’s life span and salvage value.

Step 2: Determine the asset’s life span and salvage value

You can calculate the asset’s life span by determining the number of years it will remain useful. This information is typically available on the product’s packaging, website, or by speaking to a brand representative.

Next, you’ll estimate the cost of the salvage value by considering how much the product will be worth at the end of its useful life span.

Step 3: Subtract the salvage value from the purchase price

Now that you have calculated the purchase price, life span, and salvage value, it's time to subtract these figures.

Subtract the asset’s salvage value from the purchase price. This number will show you how much money the asset is ultimately worthwhile calculating its depreciation.

Step 4: Calculate depreciation expenses

Once you understand the asset’s worth, it’s time to calculate depreciation expense using the straight-line depreciation equation. 

This means taking the asset’s worth (the salvage value subtracted from the purchase price) and dividing it by its useful life. This number will give you an asset’s annual depreciation expense.

Step 5: Divide by 12 for monthly depreciation (optional)

If you want to take the equation a step further, you can divide the annual depreciation expense by twelve to determine monthly depreciation. This step is optional, but it can shed light on monthly depreciation expenses.

With these numbers on hand, you’ll be able to use the straight-line depreciation formula to determine the amount of depreciation for an asset on an annual or monthly basis.

When to use straight-line depreciation

Straight-line depreciation is best for assets that wear out evenly over time, like:

• Office furniture
• Buildings
• Computers
• Vehicles
• Machinery

It’s also ideal when you want a simple, predictable method for calculating depreciation. Understanding how much value an asset loses over time allows you to plan for replacements and manage expenses. It’s especially useful for budgeting the cost and value of assets like vehicles and machinery. 

However, for assets that lose value quickly or have uneven usage, other methods may be more suitable.

Is straight-line depreciation the right method?

The straight-line method is a popular choice for its simplicity, but it has limitations. Understanding the pros and cons can help you decide if this depreciation method is right for your business.

Accelerated depreciation vs. straight-line depreciation

The straight-line and accelerated depreciation methods differ in how they allocate an asset’s cost over time.

Accelerated depreciation recognizes a higher loss of value in the earlier years of an asset's lifespan, reflecting faster wear-and-tear or obsolescence upfront. This approach can be beneficial for businesses looking to maximize deductions sooner.

Straight-line depreciation, on the other hand, spreads the loss of value evenly across the asset's useful life, providing consistent expense amounts year over year. It assumes an asset will lose the same amount of value each year and works well for assets that lose value steadily over time.

Now that you know the difference between the depreciation models, let’s see the straight-line depreciation method being used in real-world situations.

Real-world example of straight-line depreciation

Businesses use straight-line depreciation in everyday scenarios to calculate the width of business assets. To get a better understanding of how to calculate straight-line depreciation, let’s look at an example.

Tree removal service example

Let’s say you own a tree removal service, and you buy a brand-new commercial wood chipper for $15,000 (purchase price). Your tree removal business is such a success that your wood chipper will last for only five years before you need to replace it (useful life). You believe that after five years, you’ll be able to sell your wood chipper for $3,000 (salvage value). 

Calculate the wood chipper’s depreciation with the straight-line method:

Annual depreciation per year = (Purchase price of $15,000 − salvage life of $3,000) / useful life of five years

Annual depreciation per year = $12,000 / 5

Annual depreciation per year = $2,400

According to the straight-line method of depreciation, your wood chipper will depreciate by $2,400 every year.

Other depreciation methods to consider

The straight-line method of depreciation isn’t the only way businesses can calculate the value of their depreciable assets. While the straight-line method is the most straightforward, growing companies may need a more accurate method. 

Below are a few other methods one can use to calculate depreciation.

Double-declining balance method

With the double-declining balance method, higher depreciation is posted at the beginning of the useful life of the asset, with lower depreciation expenses coming later. This method is an accelerated depreciation method because more expenses are posted in an asset’s early years, with fewer expenses being posted in later years. 

This approach calculates depreciation as a percentage and then depreciates the asset at twice the percentage rate.

Units of production method

Manufacturing businesses typically use the units of production method. This method calculates depreciation by looking at the number of units generated in a given year. This method is useful for businesses that have significant year-to-year fluctuations in production.

If your company uses a piece of equipment, you should see more depreciation when you use the machinery to produce more units of a commodity. If production declines, this method lowers the depreciation expenses from one year to the next.

Boost productivity and enhance profitability 

The straight-line depreciation method can help you monitor the value of your fixed assets and predict your expenses for the next month, quarter, or year. Proper asset planning also plays a key role in demand planning, helping businesses anticipate future needs and optimize resource allocation.

If you’re ready to take your business performance to the next level, consider investing in a custom ERP that tracks your income, expenses, and more.