Listen to a Business English Dialogue about Straight line
Nathan: Hi Grace, have you heard about the term “straight line” in finance?
Grace: No, what does it refer to?
Nathan: It’s a method used for depreciating assets evenly over their useful life, spreading the cost of the asset evenly across each year.
Grace: Oh, so it’s a way to allocate the cost of an asset over time?
Nathan: Exactly. It’s a simple and commonly used method for calculating depreciation expenses.
Grace: That sounds useful. So, how does the straight-line method work?
Nathan: The straight-line method divides the cost of the asset by its expected useful life to determine the annual depreciation expense.
Grace: I see. Are there any advantages to using the straight-line method?
Nathan: One advantage is that it’s easy to understand and calculate, making it suitable for small businesses and assets with consistent usage over time.
Grace: That makes sense. So, are there any limitations to using the straight-line method?
Nathan: One limitation is that it doesn’t account for changes in an asset’s usage or productivity over time, which could result in inaccuracies in depreciation expense.
Grace: I understand. So, businesses should consider factors like asset usage and obsolescence when choosing a depreciation method?
Nathan: Absolutely. It’s important to select a depreciation method that best reflects the actual usage and value of the asset over its useful life.
Grace: Thanks for explaining, Nathan. The straight-line method seems like a straightforward way to account for asset depreciation.
Nathan: No problem, Grace. It’s a foundational concept in accounting that helps businesses accurately reflect the value of their assets over time.