Depreciation offers businesses a way to recover the cost of an eligible asset by writing off the expense over the course of the useful life of the asset. The most commonly used method for calculating depreciation under generally accepted accounting principles, or GAAP, is the straight line method. This method is the simplest to calculate, results in fewer errors, stays the most consistent and transitions well from company-prepared statements to tax returns.

Depreciation using the straight line method reflects the consumption of the asset over time and is calculated by subtracting the salvage value from the purchase price of the asset, and then dividing that amount by the projected useful life of the asset. For instance, say a catering company purchases a delivery van for \$35,000. The expected salvage value is \$10,000 and the company expects to use the van for five years. By using the formula for the straight line method, the annual depreciation is calculated as

(35,000 - 10,000) / 5 = 5,000. The van depreciates at a rate of \$5,000 per year for the next five years.

In the event the asset is purchased on a date other than the beginning of the year, the straight line method formula is multiplied by the fraction of months remaining in the year of purchase. In the above example, if the van was purchased on Oct. 1, depreciation is calculated as (3 months / 12 months) x {(35,000 - 10,000) / 5} = 1,250. In the first year, the catering company writes off \$1,250.

Other accepted methods of calculating depreciation according to GAAP are accelerated methods. These include the units of production method, sum of the years' digits method and declining balance method.