Notice that we included the tax and transportation. Step 1: Calculate the Asset CostĪs explained above, the total cost of Mark’s truck was $45,000. It cost $1,000 to transport the truck to him, and taxes were $4,000, making the total cost $45,000. He recently purchased a truck to deliver packages that cost $40,000. Let’s use this situation to illustrate how to use the formula. You can calculate straight-line depreciation in just five steps.

How to Calculate Straight Line Depreciation Other methods use more complex formulas, which may cause problems for those who are new to depreciation. With straight-line depreciation, you’re less likely to make errors with your account because it is easier to calculate.

Other methods of deprecation will adjust expenses based on the assets’ use. It is the easiest depreciation method because it uses consistent depreciation over time. It will reduce your net income but will be added back into your operating cash flow because it is not an operating cash expense. Straight line depreciation appears on your balance sheet as a fixed cost. This method will gradually reduce the value of a fixed or tangible asset over time. What is Straight Line Depreciation?īusiness owners use straight-line depreciation to write off the expense of an asset. This new skill will play a major role in your financial planning. We’ve created the following guide explaining how to calculate straight-line depreciation for an asset. Understanding straight line depreciation is necessary to master your wealth management and matters for both your cash flow management and tax preparation. But if you’re like 60% of small businesses, you may not have confidence in your financing and accounting skills. Straight line deprecation: it’s one of the most important ways to measure the life of your company’s tangible assets.