Depreciation Methods Compared: Straight-Line vs. Double-Declining Balance
October 21, 2026
When a business buys equipment, a vehicle, or a building, it does not treat the whole cost as an expense in the first year. Instead, it spreads the cost over the asset's useful life through depreciation, matching the expense with the revenue the asset helps to earn. The method chosen affects reported profit, taxable income, and the asset's book value on the balance sheet.
The two most common methods are straight-line, which spreads cost evenly, and double-declining balance, an accelerated method that front-loads the expense. The example is a $30,000 machine with an estimated salvage value of $3,000 and a five-year useful life.
Skip the math and get your answer instantly:
Open the Simple Interest Calculator →Straight-Line Depreciation
Annual depreciation = (cost − salvage value) ÷ useful life = ($30,000 − $3,000) ÷ 5 = $5,400 per year. The expense is the same each year, and the book value falls by $5,400 annually, from $30,000 to $3,000 at the end of year 5. It is simple, predictable, and widely used for financial reporting.
Monthly depreciation is $450, which is handy for partial years. If the machine is placed in service on July 1, the first year's depreciation is half of $5,400.
Double-Declining Balance
This method applies twice the straight-line rate (2 ÷ 5 = 40%) to the book value at the start of each year, ignoring salvage value until the final year, when depreciation is limited so the book value does not fall below salvage. Year 1: 40% × $30,000 = $12,000. Year 2: 40% × $18,000 = $7,200. Year 3: 40% × $10,800 = $4,320. Year 4: 40% × $6,480 = $2,592. Year 5: 40% × $3,888 would be $1,555, but only $888 is allowed to bring the value to $3,000 salvage.
The total depreciation over five years is the same $27,000. The timing differs.
| Year | Straight-line expense | Straight-line book value | Double-declining expense | Double-declining book value |
|---|---|---|---|---|
| 1 | $5,400 | $24,600 | $12,000 | $18,000 |
| 2 | $5,400 | $19,200 | $7,200 | $10,800 |
| 3 | $5,400 | $13,800 | $4,320 | $6,480 |
| 4 | $5,400 | $8,400 | $2,592 | $3,888 |
| 5 | $5,400 | $3,000 | $888 | $3,000 |
Why Choose One Over the Other
Accelerated depreciation better matches the pattern of assets that lose value or usefulness fast, such as technology and vehicles, or those that need more maintenance as they age. It also defers taxes in early years, because larger deductions reduce taxable income sooner, which has value through the time value of money. The tradeoff is lower reported profit in the early years.
Tax rules often prescribe their own methods and schedules, such as the Modified Accelerated Cost Recovery System (MACRS) in the United States, plus special deductions for immediate expensing of certain assets. Book and tax depreciation often differ, creating deferred taxes. Consult an accountant for the rules that apply to you.
Other Methods
Units-of-production depreciation allocates cost by usage: if the machine is expected to produce 90,000 units and makes 20,000 this year, depreciation is 20,000 ÷ 90,000 × $27,000 = $6,000. Sum-of-the-years'-digits is another accelerated method. Land is not depreciated. Intangible assets are amortized.
Using Depreciation in Decisions
Depreciation is a non-cash expense: the cash left the business when the asset was bought. For cash flow analysis, add depreciation back to net income. When pricing products or evaluating profitability, include it as a real cost of using capital equipment, and plan for replacement, because depreciation reserves do not automatically exist as cash.
Frequently Asked Questions
What is straight-line depreciation?
An equal expense each year, calculated as (cost − salvage) ÷ useful life.
What is double-declining balance?
An accelerated method applying twice the straight-line rate to the declining book value.
Does depreciation affect cash?
No. It is a non-cash expense, though it reduces taxable income and so affects taxes.
Can an asset be depreciated below salvage value?
No. Depreciation stops when book value reaches salvage value.
Is land depreciable?
No, land is not depreciated.