What is amortization in accounting?

Amortization is an accounting technique used to periodically lower the book value of a loan or an intangible asset over a set period of time. Concerning a loan, amortization focuses on spreading out loan payments over time. When applied to an asset, amortization is similar to depreciation .

What is an example of amortization?

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. The concept also applies to such items as the discount on notes receivable and deferred charges.

What is amortization & why is it important?

Amortization is an important concept not just to economists, but to any company figuring out its balance sheet. Amortization refers to capitalizing the value of an intangible asset over time. It's similar to depreciation, but that term is meant more for tangible assets .