It is an accounting term that refers to the process of allocating the cost of an intangible asset over a period of time. It also refers to the repayment of loan principal over time. It is the write-off of an asset over its expected period of use, which shifts the asset from the balance sheet to the income statement.
The amortization concept also applies to such items as the discount on notes receivable and deferred charges. The term is also used in lending, where an amortization schedule itemizes the beginning balance of a loan, less the interest and principal due for payment in each period, and the ending loan balance. It essentially reflects the consumption of an intangible asset over its useful life. Amortization is most commonly used for the gradual write-down of the cost of those intangible assets that have a specific DEFINITION of 'Amortization'. 1. The paying off of debt with a fixed repayment schedule in regular installments over a period of time. Consumers are most likely to encounter amortization with a mortgage or car loan. 2. The spreading out of capital expenses for intangible assets over a specific period of time (usually over the asset's useful life) for accounting and tax purposes. Amortization is similar to depreciation, which is used for tangible assets, and to depletion, which is used with natural resources. Amortization roughly matches an asset’s expense with the revenue it generates.  The fact is that most of a company’s assets, whether tangible or intangible, lose value over time. Those losses are quantifiable, which can have an impact on your business' accounting practices. When discussing an intangible asset, the process of quantifying gradual losses in value is called amortization. Amortization Versus Depreciation. While amortization and depreciation are similar, they differ in application. Amortization is used for intangible assets, such as patents on inventions, licenses, trademarks, and goodwill in the marketplace. Depreciation applies to tangible assets that have salvage value. Yet another difference between amortization and depreciation is that the calculation of amortization does not usually incorporate any salvage value, since an intangible asset is not typically considered to have any resale value once its useful life has expired.  What it is: Amortization is an accounting term that refers to the process of allocating the cost of an intangible asset over a period of time. It also refers to the repayment of loan principal over time. If an intangible asset has an indefinite life, such as goodwill, it cannot be amortized. It is important to note that the term amortization refers to intangible assets; the term depreciation refers to tangible assets, and the term depletion refers to natural resources. Amortization of loans [edit]. In lending, amortization is the distribution of payment into multiple cash flow installments, as determined by an amortization schedule. Unlike other repayment models, each repayment installment consists of both principal and interest. In business, amortization refers to spreading payments over multiple periods. The term is used for two separate processes: amortization of loans and assets Amortization is the write-off of an asset over its expected period of use, which shifts the asset from the balance sheet to the income statement. It essentially reflects the consumption of an intangible asset over its useful life. Amortization is most commonly used for the gradual write-down of the cost of those intangible assets that have a specific useful life. Examples of intangible assets are patents, copyrights, taxi licenses, and trademarks 1 Amortization refers to spreading the cost of an intangible asset over its useful life. 2  Intangible assets include patents, copyrights, and intellectual property. 3  Depreciation refers to prorating the cost of a tangible asset over its estimated life. 4  Tangible assets include land, building, equipment, and vehicles. 1. Begin amortization of intangible assets when the asset is acquired or when it is available for use. 2. Determine the initial cost of intangible asset. 1  As an example, assume that you bought a patent for your invention. 2  It cost you $50,000 to buy the patent. 3  This will be your initial cost. amortization. The systematic allocation of the discount, premium, or issue costs of a bond to expense over the life of the bond. The systematic allocation of an intangible asset to expense over a certain period of time. 
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what is amortization in accounting