Amortization
Financial Accounting glossary · Assets: Cash, Receivables, Inventory, PP&E & Intangibles
Definition
Periodic allocation of the cost of an intangible asset over its useful life; analogous to depreciation for tangible assets.
Amortization in plain English
Some things a company buys aren't physical — like a patent or a software license — but they still lose value as their useful life runs out. Amortization spreads that cost out evenly over the years the thing is useful, instead of dumping the whole expense in the year you bought it. For example, a $50,000 patent good for 10 years would be expensed at $5,000 a year. It's the exact same idea as depreciation, which does this for physical stuff like machines and trucks — amortization just handles the invisible assets.
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