What is 'amortization'?

What is 'Amortization'?

Amortization is an accounting technique used to incrementally lower the cost value of a finite life or intangible asset through scheduled charges to income. Amortization is the paying off of debt with a fixed repayment schedule in regular installments over a period of time for example with a mortgage or a car loan. It also refers to the spreading out of capital expenses for intangible assets over a specific duration (usually over the asset's useful life) for accounting and tax purposes.

Amortization can refer to the paying off of debt, over a period of time, in regular installments of interest and principal adequate enough to repay the loan in full by maturity. Amortization can also mean the deduction of capital expenses over the asset's useful life where it measures the consumption of the value of intangible assets, such as goodwill, a patent or copyright.