Amortization

Expert Solution

Amortization

There are two type of asset exists in business one is tangible asset like building, car, machine etc which are physically exists and second is the asset which is not physically exists such as patent, trademark etc.

For writing of the cost of tangible assets over a period of time we use depreciation technique and for writing off the cost of intangible assets we use the amortization technique in accounting.

So, Amortization may be defined as a accounting term to expense cost of the intangible assets over the useful life of assets.

For example, if a company incurred a sum of 10000 USD to get a patent and it will last till 10 years than company will amortize 10000 / 10 = 1000 USD every year in its books to expense off the expenditure of patent.

Main difference in depreciation and amortization is that there are several techniques to calculate depreciation but amortization is calculated only on straight line method (SLM).

Some time amortization is also used for the principal payment of debt. for example if a company paid 10000 USD debt towards principal amount than it will say that 10000 USD debt is amotized.

So above description clears about the term amortization.

ekkarill92 answered 1 year ago

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Question: What is an amortization schedule?

Question: What is an amortization schedule? Waht is the use of amortizatio schedule?

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