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What is the importance of Straight Line Method?

Straight Line depreciation is a tool or method that tells the amount related to carrying of an asset till it is useful. It explains that a fixed asset of a company gets reduced value as time spends. Though it has purchased in a proper amount or its initial value was higher, but after a fixed time its value reduces. This is simple method and followed by every company.

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What are the various steps of a straight line method?

These are as follows –

  • What is the initial cost of an asset?
  • Now, what is the projected salvage value based on the amount that is recorded.
  • After that evaluate the estimated time that is useful for the asset.
  • Now get an exact depreciation rate by dividing 1 by used year as if 5 years, then it must be 1/5 years.
  • Finally you just need to get its actual value by multiplying the depression rate with asset cost.

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 What are the terms related to this?

The different terms are as follows-

  • Debit
  • Credit
  • Asset
  • Liabilities
  • Equity’s share
  • Salvage value
  • accounting Entry
  • Mid-month Convention

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