Amortization means the allocation of the cost of an intangible asset to expense over its useful life in a systematic and rational manner.
It also means a charge for investments made in other companies (acquisition) over and above the value of the assets purchased.
Companies record intangible assets at cost. Intangibles are categorized as having either a limited life or an indefinite life. If an intangible has a limited life, the company allocates its cost over the asset’s useful life using a process similar to depreciation. The process of allocating the cost of intangible is referred to as amortization. The cost of intangible assets with indefinite lives should not be amortized.
To record amortization of an intangible asset, a company increases (debits) Amortization Expense and decreases (credits) the specific intangible asset. (Unlike depreciation, no contra account, such as Accumulated Amortization, is usually used.)
Amortization is a process of full payment of debt in installments of principal and earned interest over a definite time.
Webster Dictionary Meaning
- The extinction of a debt, usually by means of a sinking fund; also, the money thus paid.
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