Amortization

Amortization (Definition)

Amortization is the systematic allocation of the cost of an intangible asset over its useful life. It is also used to describe the repayment of loan principal over time.

Key aspects of amortization include:

1. Used for intangible assets like patents, copyrights, and trademarks
2. Similar to depreciation, but for intangible rather than tangible assets
3. Helps match the cost of an asset to the revenue it generates over time
4. In loan repayment, it refers to the gradual reduction of debt through regular payments
5. Can affect a companys tax liability and financial statements
6. Calculation methods include straight-line and accelerated amortization
7. Important for accurate financial reporting and analysis Proper amortization ensures that the cost of long-term assets is appropriately allocated and reflected in a companys financial statements.