Straight-line Depreciation Journal Entry

Straight-line depreciation is the depreciation method that allocates the depreciation expense based on the fixed assets’ useful life. The company will charge the same monthly depreciation expense over the asset’s life. It assumes that the assets will be used equally over their lifetime.

The concept of depreciation is to spread the cost of assets over their useful life. Company needs to pay to acquire the fixed assets but it will be consumed over the period of time which is more than one year. Fixed assets will provide economic benefit to the company before it breaks down.

The period of time that assets provide value to company is called useful life. Company can have each asset’s useful life by consulting with experts or using historical data. It is the accounting estimate which is very subjective.

Based on the matching principle, company needs to record revenue and expense in the period which they incur. Company must record expenses and the related income in the same period. Company usually records revenue every month base on the accrual basis, so depreciation expense needs to record in the same period that company consumes its benefit. We cannot record expenses on the purchasing date as it will provide benefits over a long period.

Straight Line Depreciation Formula

Depreciation expense will be calculated by the total cost of fixed assets less scrape value and divided by useful life.

Straight Line depreciation expense = (Cost – Scrape value)/Useful life

Cost: it the total cost of fixed assets that are necessary to bring assets to use.

Scrape value: is the value of fixed assets that remains at the end of useful life. The company expects to receive this amount after the disposal of assets.

Useful life: is the estimated life of the fixed assets. It is the management estimation based on historical information and expert. Company can prepare the accounting policy to ensure consistency.

Straight Line Depreciation Journal Entry

The company needs to make monthly journal entry by debiting depreciation expenses and credit accumulated depreciation.

Account Debit Credit
Depreciation Expense 000
Accumulated Depreciation 000

Depreciation expense will impact the income statement and deduct company profit. Most company record depreciation expenses on a monthly basis. Accumulated depreciation will present as the fixed assets contra account in the balance sheet.

Straight Line Depreciation Example

Company ABC purchase a new vehicle that cost $ 50,000 on 01 Jan 202X. Based on the experience, company will depreciate it using a straight line with a useful life of 4 years. The scrape value is around $ 10,000.

Please prepare the straight-line depreciation journal entry.

First, we need to calculate the monthly depreciation expense.

Depreciation expense = (50,000 – 10,000)/4 years = $ 10,000 per year

Monthly depreciation = 10,000/12 months = $ 833.33 per year

At month end, ABC needs to make journal entry by debiting depreciation expense $ 833.33 and crediting accumulated depreciation $ 833.33.

Account Debit Credit
Depreciation Expense 833.33
Accumulated Depreciation 833.33

Depreciation expense $ 833.33 will be present in an income statement while accumulated depreciation will deduct the amount of the fixed asset in the balance sheet.

Fixed assets will be presented as follows:

Account Balance
Cost of vehicle 50,000
Less: accumulated depreciation (833.33)
Netbook value of the vehicle 49,166.67