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Accounting
Residual Value
The estimated amount an asset will still be worth at the end of its useful life (also called salvage value).
Residual value is subtracted from cost before calculating depreciation. It keeps the asset from being depreciated all the way to zero if it still has some value left.It's like guessing how much your old car will be worth when you finally sell it after driving it for five years.
Real world: A company buys a machine for $30,000 and estimates it can sell the scrap metal for $3,000 after 8 years — $3,000 is the residual value.
💡 Guessing a realistic residual value stops you from overstating expenses early on — too high or too low throws off your numbers for years.