How it works
Depreciation spreads the cost of a long-lived asset over the years it is used. Straight-line takes the same amount each year. Declining balance applies a fixed percentage to the remaining book value, front-loading the expense. Sum-of-the-years' digits is also accelerated, but less steep in the early years than double declining.
All three methods depreciate the asset down to its salvage value: the amount you expect to sell it for at the end of its useful life.
These are book (financial reporting) methods. For US tax returns, most business property uses MACRS, and Section 179 or bonus depreciation may let you deduct more up front.
Formula
Straight-line = (Cost − Salvage) ÷ Life. Declining balance = Book value × Rate ÷ Life. SYD = (Cost − Salvage) × Remaining life ÷ (n(n + 1) ÷ 2).
Questions people ask
Which depreciation method should I use?
Straight-line is simplest and most common for financial statements. Accelerated methods better match assets that lose value or productivity quickly, such as vehicles and computers.
Does declining balance subtract salvage value first?
No. The rate is applied to the full book value each year, but depreciation stops once book value reaches salvage value.
What is the difference between depreciation and amortization?
Depreciation applies to tangible assets like equipment and buildings. Amortization applies the same idea to intangible assets such as patents and software licenses.