Final answer:
The difference between a fixed asset's initial cost and its residual value is known as its depreciable cost, which is the amount that will be depreciated over the asset's useful life.
Step-by-step explanation:
The difference between a fixed asset's initial cost and its residual value is known as its depreciable cost. When a business acquires a fixed asset, it records the asset at its initial cost.
This cost is then depreciated over the useful life of the asset—the process by which the cost of the asset is allocated over the time it is used to help generate revenue.
The depreciable cost is the portion of the asset's initial cost that is expected to be used up during its useful life; it excludes the residual value (also known as salvage value), which is the estimated amount the asset will be worth at the end of its useful life.
For example, if a company buys a piece of machinery for $100,000 and expects it to have a residual value of $20,000 at the end of its 10-year useful life, the depreciable cost would be $80,000. This is the amount that would be depreciated over the 10 years.