Depreciation is the accounting story of an asset losing value over time. Two methods dominate intro courses: straight-line and double-declining balance. They start with the same purchase cost and end at the same residual value, but they get there on very different paths. Picking the right method on an exam is mostly about knowing which pattern of expense each one produces — and seeing the numbers move side by side makes the difference obvious.
The Two Methods at a Glance
Straight-line depreciation spreads the cost evenly across the asset's useful life. Every year gets the same expense.
Straight-line formula: Annual depreciation = (Cost − Salvage value) ÷ Useful life
The numerator is the asset's depreciable base — the part of the cost that will actually wear out, since salvage value is what you expect to recover at the end. Divide it by the years of life and you have a flat annual expense.
Double-declining balance (DDB) is an accelerated method. It front-loads expense in the early years and tapers off later. There are two twists: it ignores salvage value in the formula itself, and it applies a fixed rate to a changing book value each year.
DDB formula: Annual depreciation = 2 × (1 ÷ Useful life) × Book value at start of year
The "double" is the doubling of the straight-line rate. The "declining balance" is that you apply that doubled rate not to the original cost, but to whatever book value the asset has at the start of each year — which gets smaller each period.
One Asset, Two Schedules: A Worked Example
A landscaping company buys a commercial mower:
- Cost: $20,000
- Salvage value: $2,000
- Useful life: 5 years
The depreciable base under straight-line is $20,000 − $2,000 = $18,000.
Straight-line schedule
Annual depreciation = $18,000 ÷ 5 = $3,600 per year, every year.
| Year | Depreciation expense | Accumulated depreciation | Book value (year-end) |
|---|---|---|---|
| 0 (purchase) | — | $0 | $20,000 |
| 1 | $3,600 | $3,600 | $16,400 |
| 2 | $3,600 | $7,200 | $12,800 |
| 3 | $3,600 | $10,800 | $9,200 |
| 4 | $3,600 | $14,400 | $5,600 |
| 5 | $3,600 | $18,000 | $2,000 |
Book value drops in equal $3,600 steps and lands exactly on salvage at the end of year 5.
Double-declining balance schedule
Straight-line rate is 1 ÷ 5 = 20%. Double it: 40% per year. Apply 40% to book value at the start of each year.
| Year | Calculation | Depreciation | Accumulated | Book value (year-end) |
|---|---|---|---|---|
| 0 | — | — | $0 | $20,000 |
| 1 | 40% × $20,000 | $8,000 | $8,000 | $12,000 |
| 2 | 40% × $12,000 | $4,800 | $12,800 | $7,200 |
| 3 | 40% × $7,200 | $2,880 | $15,680 | $4,320 |
| 4 | 40% × $4,320 → capped at $2,320 | $2,320 | $18,000 | $2,000 |
| 5 | Book value already at salvage | $0 | $18,000 | $2,000 |
Two things to flag in the DDB schedule. First, year 4 is capped: the formula would produce $1,728, but that would drop book value below the $2,000 salvage. So depreciation in year 4 is whatever amount brings book value down to exactly salvage. Second, year 5 has zero expense — the asset is fully depreciated. The rule "never depreciate below salvage value" overrides the percentage in the final periods.
Comparing the Two Side by Side
| Year | Straight-line | Double-declining |
|---|---|---|
| 1 | $3,600 | $8,000 |
| 2 | $3,600 | $4,800 |
| 3 | $3,600 | $2,880 |
| 4 | $3,600 | $2,320 |
| 5 | $3,600 | $0 |
| Total | $18,000 | $18,000 |
Total depreciation is the same — the same $18,000 of depreciable base is recognized either way. The difference is when. DDB recognizes more than half the depreciation in the first two years; straight-line takes five years to reach the same point. Book value under DDB falls fast at first and barely moves at the end; book value under straight-line falls in equal steps.
That pattern matters for the income statement. DDB pushes more expense — and therefore lower net income — into the early years. It also lowers taxable income earlier, which can defer tax payments. Straight-line keeps expense flat and net income steadier from year to year.
When Each Method Fits
Straight-line suits assets whose usefulness is roughly constant across their life — a building, office furniture, a long-lived piece of equipment that does the same job year after year. The flat expense matches the flat pattern of use.
Double-declining balance suits assets that deliver more value early and lose effectiveness as they age — vehicles, technology, machines that are most reliable when new. Accelerated depreciation matches the curve of actual wear and the typical maintenance/repair pattern. DDB is also chosen for tax-deferral reasons, since pushing expense forward delays the tax bill.
A small thing worth knowing: U.S. tax depreciation under MACRS often resembles DDB for many asset classes, while companies frequently use straight-line for their financial statements. Two sets of depreciation books for the same asset is normal.
Getting Help
Depreciation is one of the routine adjusting entries that close out a period and roll into the next. To see how those adjustments are recorded as debits and credits, see recording journal entries, and for how depreciation flows through to the cash flow statement, see statement of cash flows explained.
Conclusion
Straight-line vs. double-declining depreciation comes down to timing, not totals. Both methods recognize the same total depreciable cost over the same useful life, but straight-line spreads it evenly while double-declining accelerates it into the early years. Build the schedule, watch the book value, and stop the depreciation when book value hits salvage — and the two methods stop blurring together.
