Straight-Line Depreciation
Definition
A depreciation method that charges an equal amount each period over an asset's useful life. It is the simplest method and suits assets that lose value evenly over time.
Formula
Annual depreciation = (Cost − Salvage value) ÷ Useful life (years)
Related Terms in Core Accounting
Declining Balance Depreciation
An accelerated depreciation method that applies a fixed percentage to the asset's reducing book value each period, charging more in the early years. It suits assets that lose value faster when newer.
Units of Production Depreciation
A depreciation method that charges cost based on actual usage — units produced or hours run — rather than time. It matches the expense to how intensively the asset is used in each period.
Capitalization
Recording an expenditure as an asset and spreading its cost over future periods through depreciation or amortization, instead of expensing it immediately. It applies to spending that provides benefit beyond the current period.
Closing the Books
The end-of-period process of finalising the accounts — posting adjustments, reconciling balances, transferring revenue and expense balances to retained earnings, and locking the period so reports are stable.
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