What is amortization?

[devinluke]

I am trying to understand what amortization means and how it is used in accounting or loans. Is it just about spreading payments over time, or does it also apply to assets? Can someone explain in simple terms with an example so I can get a clear idea?

 

[Shane Warne]

Amortization is the process of gradually paying off a debt through scheduled installments that include both principal and interest. In accounting, it also refers to spreading the cost of intangible assets (like patents or trademarks) over their useful life, helping match expenses with generated revenue.

 

[brook]

The term Amortization is used in the process of settling a debt in installments over time that contain both a principal and interest. In accounting, it is also the allocation of the cost of intangible assets (such as patents or trademarks) to the useful life, which is used to align expenditures across the revenue generated.

 

[Jarwish]

Amortization is the gradual repayment of a loan or the systematic allocation of an intangible asset's cost over its useful life, reducing its book value over time.

 

[denjoshep]

Amortization is the gradual reduction of a debt or intangible asset’s value over time through scheduled payments or expense allocation. For loans, it refers to spreading payments into principal and interest portions. For assets, it allocates costs systematically over their useful life, reflecting usage, wear, or obsolescence.