How to Calculate Depreciation
Alanis Business Academy・2 minutes read
Depreciation using the straight-line method factors in the purchase price, salvage value, and useful life of an asset, gradually reducing its value on balance sheets. Fully depreciated assets can still provide value despite no longer appearing on balance sheets.
Insights
- The straight-line method of depreciation, commonly used in accounting, calculates the decreasing value of assets over time by dividing the difference between the purchase price and salvage value by the estimated useful life of the asset.
- Depreciation ensures that assets are accurately reflected on balance sheets by gradually reducing their value as they age and deteriorate, preventing overvaluation and maintaining financial transparency.
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Recent questions
What is the straight-line method of depreciation?
The straight-line method evenly distributes the asset's depreciation over its useful life.
How is salvage value determined for depreciation?
Salvage value is the estimated asset value after its useful life.
Why is depreciation important in accounting?
Depreciation ensures assets are not overvalued as they age.
What happens to fully depreciated assets?
Fully depreciated assets can still provide value.
How does the IRS regulate asset useful life for depreciation?
The IRS provides guidelines for determining asset useful life.
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