Encyclopedia of Business | Amortization

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Amortization, an accounting concept similar to depreciation, is the gradual reduction of an asset or liability by some periodic amount. In the case of an asset, it involves expensing the item over the time period it is thought to be consumed. For a liability, the amortization takes place over the time period the item is repaid or earned. It is essentially a means to allocate categories of assets and liabilities to their pertinent time period.

The key difference between depreciation and amortization is the nature of the items to which they apply. The former is generally used in the context of tangible assets, such as buildings, machinery, and equipment. The latter is more commonly associated with intangible assets, such as copyrights, goodwill,...