Straight-line depreciation represents a method of allocating the cost of an asset evenly over its useful life. This accounting technique results in the same depreciation expense being recognized in each period until the asset’s book value reaches its salvage value. For example, if an asset costs $10,000, has a useful life of 5 years, and a salvage value of $2,000, the annual depreciation expense would be calculated as ($10,000 – $2,000) / 5 = $1,600.
The adoption of this consistent and predictable depreciation pattern offers several advantages for businesses. It simplifies record-keeping and financial reporting, making it easier to track asset values and understand profitability trends. Its straightforward calculation allows for clear communication of financial performance to stakeholders, including investors and lenders. Historically, its simplicity made it a favored method before the widespread adoption of computerized accounting systems.