Amortization Question
Hi all,
Would someone be able to explain how amortization flows through the three statements? I understand that it will lower pretax income on the income statement, but I've read that it is considered a non cash expense so it should be added back on the statement of cash flows. This doesn't make sense to me because it is the repayment of debt which would make it an actual cash out flow. In addition, instead of adding it back on the operating section of the CFS you would actually subtract it from the financing section because you are repaying debt principal. Could someone please explain where I'm messing up at?
Best, Tim
I think you're confusing amortization of debt and amortization of intangibles. The latter hits the P&L because it is a technically an operating expense, but does not incur any movement of cash (hence the addback in the cashflow statement). Amort of debt doesn't show up on the income statement, but is accounted for in the cashflow statement because unlike amort of intangibles, requires an actual outflow of cash (and corresponding reduction in a liability)
Ahh I see. Thank you! That is exactly what I needed.
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