What is the basic concept of straight-line depreciation?

The basic concept of straight-line depreciation is that it allocates equal amounts of depreciation expense over the useful life of an asset. This method is straightforward and easy to apply, as it involves simply taking the cost of the asset, subtracting its salvage value (the estimated residual value at the end of its useful life), and dividing that amount by the useful life of the asset in years. This results in a consistent and predictable expense recognized each accounting period, making it easier for businesses to budget and plan their finances.

This approach contrasts with methods that vary in the amount of depreciation expense recorded, such as an accelerated depreciation method, where higher depreciation expenses are taken in the early years of an asset's life. Therefore, the clarity and simplicity of the straight-line method are why it is widely used in accounting practices for reporting the gradual reduction in the value of fixed assets.