Amortization
Encyclopedia of Business Terms and Methods, ISBN 978-1-929500-10-9. Copyright © 2012 by Marty J.Schmidt.Revised 10 January 2012.
The Meaning of Amortization
The term amortization is used in business in at least two ways.
- The term amortization refers to the paying off of a debt with regular payments (as in "amortizing" a mortgage, or "loan amortization").
- Amortization also refers to the accounting procedure that gradually reduces the book value of an intangible asset, in a manner similar to depreciation for tangible assets. When the asset is an intangible asset with a limited life (e.g., the purchased right to use a patent for a specified period of time), the process of reducing its book value and charging an expense against income is called amortization instead of depreciation. Depreciation amortization expenses of this kind are usually derived with the straight line method applied across the asset's limited life.
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