Friday, June 1, 2007

Calculating Straight Line Depreciation

Calculating straight line depreciation is a fairly easy process. There are three things you need to know to fiqure it out.


Residual Value

Useful Life

The formula is:

(cost - residual value)/useful life = yearly depreciation

For example, you buy a new car and it costs $12,000 and has residual value in 5 years of $2000.

(12,000 - 2000)/5 = 2000 per year for depreciation.

The accounting entry for this would be:

Depreciation Expense $2000 debit

Accumulated Depreciation $2000 credit

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