Straight-line depreciation: 3 figures to set on equipment

• Cost: the purchase plus the setup costs needed to get the item running, with records saved.
• Salvage value: an estimate you can explain, with the reason written down.
• Useful life: the years you expect the item to be productive for your business.
• Annual expense: cost minus salvage value, divided by useful life in years.
• Repairs: logged as they happen, not inside the depreciation figure.

When you buy a tool, a van kit or a machine that will earn its keep for years, you should not record the whole price as one expense on the day you paid. The item wears out slowly, so the books should show a share of its cost each year. Spreading the cost like this is called depreciation.

Straight-line depreciation is a popular choice for small teams because it gives the same expense every year. You need only three figures to calculate it: the cost, the salvage value and the useful life. Once you have them, the math is one line.

This post explains each figure, shows the formula with a worked example, and lists the mistakes that cause trouble later. It is general guidance, not accounting or tax advice for your business. Confirm the rules that apply to you with your accountant.

The starting number is the cost of the asset. For a machine or a van kit, that means more than the sticker price. Costs to get the item working, such as delivery, installation and setup, are worth tracking as part of the cost, and your accountant can confirm which ones belong. Keep the records together so you can show what went into the number. For a related setup on job costing, see Job costing setup for field service: 5 key settings.

Which costs belong in the cost of an asset depends on the accounting rules you follow, so confirm the list before you finalize it. The aim is a starting number that reflects the full cost of getting the item ready for work, not just one invoice.

The OpenStax textbook draws a useful line around what stays out. Its machine has a total cost of $58,000, and the source says that any costs for maintaining or repairing the equipment "would be treated as regular expenses, so the total cost would be $58,000" (OpenStax).

A practical habit helps here. Decide whether a kit is one asset or several separate items, and write that choice on the asset record. A van kit bought as one package is easier to track as one number. Parts that you bought separately and that do different jobs may be easier to follow on their own lines. Pick a rule and use it for every purchase, so the records stay consistent from one year to the next.

Salvage value is what you expect the item to be worth when you stop using it. It might be a resale price, a trade-in value or what a scrap yard would pay. Subtract it from the cost and you get the depreciable base, which is the amount you actually spread across the years.

The OpenStax example shows how a salvage value gets set: "Based on experience, Kenzie Company anticipates a salvage value of $10,000." (OpenStax) The key phrase is "based on experience." Look at what similar equipment sold for after years of use, or ask a dealer what a used unit of that type usually brings. An estimate built on evidence holds up better when someone reviews the books.

Guessing high is a common mistake. A higher salvage value means a smaller yearly expense, so the books will look better than the equipment is likely to turn out. If you cannot support a high estimate with anything, use a lower and more careful figure, and write down why you chose it.

Some teams set the salvage value at zero for equipment they expect to run until it is no longer useful. That can be a reasonable estimate, but only if you can explain it. Record the reason next to the number so that a later reader can see the thinking, not just the result.

Useful life is how many years you expect the item to be productive for your business. It is not the number of years the item could physically last. A tool might still run after you stop using it on jobs. If it no longer earns its place in your daily work, its useful life to you has ended, even if it still works.

The OpenStax example calls this the economic life. Its machine has an economic life of five years, and the depreciable base is spread across those five years (OpenStax).

Estimating useful life takes judgment. Think about how many hours a week the item will run, how hard the work is on it, whether the maker will keep supporting it, and whether newer models will make it less useful before it wears out. Write the estimate and the reasons down so you can explain it later.

Keep the time unit consistent. If your useful life is in years, the result is a yearly expense. If your schedule runs in months, divide the depreciable base by the number of months instead. Either way, the total spread over the life comes to the same depreciable base, so the choice is about how your records read, not about the total.

If the item is used differently than you planned, or it is sold or retired early, the estimate may need to change. Talk to your accountant about how to handle a revised life so the records stay accurate.

With all three figures, you can work out the yearly expense with one formula: annual depreciation equals the cost minus the salvage value, divided by the useful life in years.

The OpenStax straight-line example uses the same arithmetic: "($10,000 – $1,000)/5 = $1,800 per year for both years" (OpenStax). That is a $10,000 cost, a $1,000 salvage value and a five-year life. Subtract the salvage value first, then divide by the years.

Run the numbers in the same order every time. Write the result on the asset record with the three inputs beside it, so anyone reviewing the books can see where the number came from. A figure without its inputs is hard to check, and hard to defend when a question comes up.

The OpenStax textbook includes a full machine example that is useful to walk through step by step. The total cost is $58,000. The source says that "after allowing for an anticipated salvage value of $10,000 in five years, the business could take $48,000 in depreciation over the machine's economic life" (OpenStax).

Here is the calculation. The depreciable base is $58,000 less $10,000, which is $48,000. Divide that base by the five-year life and you get the yearly expense. The source puts it this way: "dividing the depreciable base of $48,000 by the economic life of five years, giving an annual depreciation expense of $9,600" (OpenStax). So the machine adds $9,600 of depreciation expense each year.

Notice what the example does not do. It does not add the upkeep to the $58,000. It does not change the yearly figure as the years go by. Once the schedule is set, the same amount posts each year until the base is used up. That steady pattern is the whole point of the straight-line method.

Suppose a van kit costs $10,000, with no salvage value expected and a useful life of 10 years. Subtract the $0 salvage value and the depreciable base stays at $10,000. Divide that base by 10 years and the yearly expense is $1,000. Repeat that $1,000 every year, and after 10 years the book value is $0, which matches the zero salvage value.

Book value is the original cost less the depreciation recorded so far. The source shows the calculation for one point in the schedule: "This is the original cost of $58,000 less the accumulated depreciation of $9,600" (OpenStax).

Carry the same machine forward one year at a time. Each year, record the $9,600 expense and subtract it from the book value you had at the start of that year. Accumulated depreciation grows by the same amount each year, so after five years it totals $48,000 (5 × $9,600). The source states the end-of-life result directly: "At the end of five years, the asset will have a book value of $10,000, which is calculated by subtracting the accumulated depreciation of $48,000 (5 × $9,600) from the cost of $58,000" (OpenStax). The book value ends at the salvage value, which is where the schedule was designed to land.

Keep the schedule up to date each year. A year-end check that the accumulated depreciation and book value match the schedule catches mistakes early, before they carry into the next year's numbers.

Upkeep is a separate matter. A new belt, a tune-up or a repair bill gets recorded when it happens, not spread into the depreciation figure. Keep the two streams apart in your records so each one is easy to read.

A simple way to remember this: depreciation spreads the purchase across the years, and upkeep is paid as it comes up. Mixing them makes both numbers harder to understand and harder to check.

A set of hand tools, a van kit and a shop machine all use the same three figures, but the answers look different. Walk through each one before you pick a number.

A tool set. A set of hand tools is often bought as one purchase. Decide whether the set is one asset or several, and be consistent. Salvage value for hand tools may be small, but it is still an estimate. Useful life depends on how often the crew uses them and how the tools hold up in that work. Write both down. For checking tools before they go out in a van, see Van-loading tool checks: 6 items before dispatch.

A van kit. A kit fitted into a van, such as racks, a generator mount or a storage system, often has a clear installed cost. Include the install in the cost if it was needed to make the kit usable. Its useful life may end sooner than the van's if the kit is moved between vehicles or replaced by a newer setup. Note which situation applies, because it changes the years you use.

A shop machine. A larger machine usually has the biggest cost and the most room for a wrong estimate. Get a clear view of the freight, rigging and setup costs, and be realistic about the salvage value, since machines can sell well or poorly depending on the market. Write down the reason for the years you chose.

Most problems in straight-line schedules come from a few habits. Watch for these.

• Leaving out setup costs that were needed to get the item working, so the base is too small.
• Setting the salvage value too high to make the yearly expense look smaller.
• Choosing a useful life because it is convenient, not because it fits how the item is used.
• Mixing repairs into the depreciation figure, which hides the true cost of the item.
• Starting the schedule long after the item went into use, so the expense and the years do not line up.
• Changing the inputs midway without a note, so the schedule no longer shows what happened.

Each of these is easy to avoid if you write down the inputs and the reason for each one.

A spreadsheet is enough for most teams. Use one row for each asset and columns for the date, the cost, the salvage value, the useful life in years, the annual expense, the accumulated depreciation and the book value. Each year, add the annual expense to the accumulated depreciation and subtract that from the cost to refresh the book value.

Add a notes column. Use it for the reasons behind each estimate and for any change in use. A reviewer, or you a few years from now, will be grateful for it.

Give each asset its own row and a unique name or number, such as a tag on the item. When an item is sold, retired or moved, update the row with the date and the reason, so the schedule still matches what you own.

Tax rules are not the same as the books. Tax rules can let some businesses deduct equipment costs differently from how they show them on the books. If you file in the United States, the IRS instructions for Schedule C say that "beginning in 2025, the maximum section 179 expense deduction is $2.5 million" (IRS). That is a tax limit on a deduction, not a depreciation method for your books. Do not switch the two without advice from a tax professional.

The point for this post is simple. The straight-line schedule you build from the three figures is your book record. Whether a tax deduction applies to a given purchase is a question for your tax advisor, and the answer can differ from your schedule.

Three numbers, one subtraction and one division will give you a steady yearly cost for most equipment. The harder part is choosing honest inputs. Take a few minutes to write down why you picked each one. When someone asks why a van kit or machine shows the cost it does, the answer should already be on the page.

Your next step today: pick one asset on your list and write down its cost, salvage value and useful life, with the reason for each estimate.

Do repairs go into the depreciation figure?

No. Repairs and upkeep are regular expenses, recorded when they happen, and they stay out of the depreciation figure.

What happens if the item is retired early?

The estimate may need to change. Talk to your accountant about how to handle a revised useful life so the records stay accurate.

Is depreciation the same as a tax deduction?

No. The straight-line schedule is your book record, and whether a tax deduction applies to a purchase is a question for your tax advisor.