In accrual-accounting practices, the cost of a capital asset is recorded over time rather than all at once at the time of purchase. This recognizes the asset's incremental decline in value due to physical wear and tear and obsolescence. This is the concept of depreciation.

Business owners can use various methods of calculating depreciation. One of the simplest and most common is the straight-line method. The straight-line depreciation method is calculated by subtracting the salvage value of an item from its purchase price and dividing the result by the asset's expected years of useful life. The result is the depreciation of the asset for each year of its useful life.

Annual Depreciation = ( Initial Cost - Salvage Value) = Useful Life

Ranch Vision employs the straight-line depreciation method when calculating depreciation on future capital purchases.