Depreciation 1 min read

What is depreciation? Methods & examples

Name: What is depreciation? Methods & examples
Uploaded: 2026-08-04T16:13:29.093936+00:00
Duration: 3 min 18 s
Description: This video explains depreciation for business owners and accountants, covering how to spread a fixed asset's cost across its useful life, key terms including useful life, residual value and net book value, and how straight-line and reducing balance methods work with practical examples.

A plain‑English definition of depreciation, the main methods (straight‑line and reducing balance), and a worked example.

A 3m 18s narrated walkthrough showing the exact on-screen steps.Narrated by Lottie

This video explains depreciation for business owners and accountants, covering how to spread a fixed asset's cost across its useful life, key terms including useful life, residual value and net book value, and how straight-line and reducing balance methods work with practical examples.

Depreciation is how you spread the cost of a fixed asset — like equipment, vehicles or fit‑out — across the years it's useful, instead of expensing the whole cost when you buy it.

In one sentence

An asset loses value as it's used, so you charge a slice of its cost to each period.

The main methods

Straight‑line: the same amount every period. Simple and by far the most common.
Reducing balance: a fixed percentage of the remaining book value each year, so charges are larger early in the asset's life.

Key terms

Useful life — how long the asset will be used.
Residual value — what it'll be worth at the end.
Net book value (NBV) — original cost minus accumulated depreciation.

Worked example

A £6,000 asset, straight‑line over 3 years, charges £2,000 a year until NBV reaches £0. Full journal and schedule: how to account for depreciation in Xero.

The automated approach

WorkWithLottie manages depreciation schedules and posts the monthly journals alongside your accruals, prepayments and deferred income.

Frequently asked questions

What is the most common depreciation method?

Straight-line depreciation, which charges the same amount to each period over the asset's useful life, is the most widely used method.

What is net book value?

Net book value (NBV) is an asset's original cost minus its accumulated depreciation — the value still carried on the balance sheet.

What's the difference between straight-line and reducing-balance depreciation?

Straight-line charges an equal amount each period. Reducing-balance charges a fixed percentage of the remaining book value, so charges are higher in the early years.