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Depreciation: Straight Line definitions

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  • Depreciation
    Allocation of a fixed asset's cost over its useful life to match expenses with related revenues, as required by GAAP.
  • Straight-Line Method
    Technique that spreads the depreciable base evenly over the asset's useful life, resulting in equal annual expense amounts.
  • Fixed Asset
    Long-term tangible resource used in operations, such as equipment or vehicles, expected to provide benefits for multiple years.
  • Matching Principle
    Accounting guideline requiring expenses to be recognized in the same period as the revenues they help generate.
  • GAAP
    Set of standardized accounting rules in the U.S. that govern financial reporting and require systematic expense allocation.
  • Depreciation Expense
    Annual charge reflecting the portion of an asset's cost allocated to the current period under a chosen depreciation method.
  • Accumulated Depreciation
    Total depreciation recorded against an asset since acquisition, shown as a contra asset account on the balance sheet.
  • Contra Asset Account
    Account that offsets a related asset account, reducing its book value on the balance sheet.
  • Net Book Value
    Amount reported for an asset on the balance sheet, calculated as historical cost minus accumulated depreciation.
  • Residual Value
    Estimated amount expected to be recovered at the end of an asset's useful life, also known as salvage value.
  • Useful Life
    Estimated period over which an asset is expected to contribute to revenue generation for a business.
  • Depreciable Base
    Difference between an asset's cost and its residual value, representing the total amount to be depreciated.
  • Historical Cost
    Original purchase price of an asset, used as the basis for calculating depreciation and reported on the balance sheet.
  • Non-Cash Expense
    Expense recognized in the accounting records that does not involve an actual cash outflow during the period.
  • Journal Entry
    Formal accounting record documenting the debit to depreciation expense and credit to accumulated depreciation for each period.