Amortization
Definition
Amortization is the process of gradually writing off the initial cost of an asset over a set period. It is often used in accounting to allocate the cost of intangible assets such as patents or goodwill.
5 Must Know Facts For Your Next Test
- Amortization involves spreading out expenses for intangible assets over their useful life.
- Unlike depreciation, which applies to tangible assets, amortization is used for intangible assets.
- Amortization expense appears on the income statement and reduces taxable income.
- In finance, amortization can also refer to the repayment schedule of loan principal over time.
- The straight-line method is commonly used for amortizing intangible assets.
Review Questions
- What types of assets are subject to amortization?
- How does amortization affect a company's financial statements?
- What is the difference between amortization and depreciation?
"Amortization" appears in:
Subjects (1)
Related terms
Depreciation: The process of allocating the cost of tangible fixed assets over their useful lives.
Intangible Assets: Non-physical assets such as patents, trademarks, and goodwill that have value to a business.
Straight-Line Method: A method of calculating amortization or depreciation by evenly spreading the cost over its useful life.
