Financial Glossary: Amortization


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Amortization

Amortization

The gradual and systematic reduction of Debt by equal periodic payments.

Amortization is an accounting practice that companies use to write off intangible rights or assets - such as Goodwill or copyrights. Where the assets being written off are fixed assets, the process is referred to as Depreciation. Expenses calculated by either process are subtracted from a company's operating revenues to give a figure for Net Income.

Such payments generally must be sufficient to recompense current Interest due during the repayment period and to repay the entire principal by the time the loan reaches maturity. An amortization schedule is a table that shows the amounts of principal and Interest due at regular intervals and the corresponding unpaid principal balance at the time each installment payment is made.

The loss in value of an intangible asset due to its use by the company is accounted for by means of amortisation. Amortisation is a so-called 'non-Cash' charge insofar as it merely reflects arbitrary accounting assessments of the loss in value.

Posted by Convention of Independent Financial Advisors CIFA, Henley & Partners Group Holdings Ltd

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