Straight line

The Straight line calculation method is the easiest and most straight forward. It depreciates the value of the asset evenly over the expected life of the asset. The formula is:

Annual depreciation expense = (Cost of the Asset - Salvage Value) / Estimated Useful Life

The salvage value is the value you expect the asset will have when you sell it after you have finished using it for your business. For example, if you buy a car for $25,000 and expect to be able to sell it for $5,000, the salvage value of that car would be $5,000. The estimated useful life for a type of asset is generally prescribed by a relative authority. For example, the IRS provides guidance that a car has a 5-year useful life. Below is a calculation example using this scenario:

Annual depreciation expense = ($25,000 car - $5,000 salvage value) / 5 years
Annual depreciation expense = $20,000 / 5 years
Annual depreciation expense = $4,000