Amortization

What is Amortization?

Amortization is the process of gradually writing off the initial cost of an intangible asset over its useful life. It is also used in finance to describe the process of paying off a debt through regular principal and interest payments.

Why It Matters

• It allows businesses to spread the cost of expensive intangible assets like patents or software over many years.

• For loans, it shows exactly how much of each payment goes toward interest versus reducing the principal balance.

• It reduces taxable income by recognizing the gradual consumption of an asset’s value.