What Is Amortization?

Amortization is the reduction of a debt or asset over a specific period of time.

When referring to debt, amortization is simply the debt payment schedule. Amortization is found on the Income Statement and Cash Flow Statement and is used for loss of value on intangible assets.

For assets the concept is similar to depreciation, except amortization is only applied to intangible assets (patents, contracts, trademarks) whereas depreciation is used for tangible assets (property, plants, equipment etc).

An example of amortization of an intangible is if a company owns a patent for 10 years worth $20 million, it would be assumed that each year the value of the patent would decrease by $2 million so as to be worthless after expiry.

Amortization is found both on the Income Statement and the Cash Flow Statement.

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Patrick Curtis is a member of WSO Editorial Board which helps ensure the accuracy of content across top articles on Wall Street Oasis. He has experience in investment banking at Rothschild and private equity at Tailwind Capital along with an MBA from the Wharton School of Business. He is also the founder and current CEO of Wall Street Oasis. This content was originally created by member WallStreetOasis.com and has evolved with the help of our mentors.

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