Our analysts are third party authors that include both professional investors and individual investors who may not be licens or certifi by any institute or regulatory body. Amortization is a finance and accounting methodology us to allocate loan principal or intangible asset value over a period of time. Real estate agent showing loan amortization schule to client. Real estate. home loan and investments concept. Korrawin/iStock via Getty Images What is Amortization? Amortization is an accounting technique us to distribute asset value or loan principal over time. (read about company assets and asset classifications here) For companies. amortization is an “expense” or spread out the cost or value of an intangible asset. such as intellectual property or goodwill. The relat tool for tangible assets. such as buildings or equipment.
Accounting method us to
There are different techniques for calculating amortization and depreciation and there is guidance for the industry in section FAS 142 of generally accept accounting principles (GAAP). For personal finance. an example of amortization is the determination of fix mortgage payments that are design to completely pay off a mortgage loan in say 15 or 30 years. What is an Amortization Expense? An amortization expense is an item that appears on a company’s financial statements as a result of amortizing an asset. asset is shown as an expense (i.e.. a “write-off”) on a company’s income statement. This expense ruces the residual value of the asset carri on the company’s balance sheet over time.
Amortization of an intangible
And is expens on a company’s income statement. Amortization Versus Depreciation When appli to assets. amortization and depreciation are similar concepts in that both are us to expense an asset over time. The main difference is that depreciation applies to tangible assets while amortization applies to intangible assets. Tangible assets include buildings. equipment. or other physical assets that are subject to wear and tear or obsolescence over time. Intangible assets are non-physical assets such as trademarks and copyrights. There are also differences in the way the two are shown on financial statements and how they are calculat. Amortization is indicat by directly criting (rucing) the specific asset account.