Amortization

What is Amortization?

Amortization refers to the accounting technique of spreading the cost of an intangible asset, or the process of paying off a debt with a fixed repayment schedule in regular installments over time. It is used by companies to gradually write off the initial cost of an asset and it also applies to the structuring of loan repayments.

Short Description: The process of gradually reducing a debt or intangible asset's value through scheduled payments over time.

• Intangible Assets: Involves spreading the purchase price over the asset's useful life (e.g., patents, copyrights).
• Loan Amortization: Involves the gradual reduction of a debt through regular principal and interest payments.
• Financial Statement Impact: Ensures the asset's cost is accurately reflected in the financial statements over time.

Amortization helps businesses and individuals understand the true cost and remaining value of an intangible asset or a loan, thus allowing for better financial planning and analysis.