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What does it mean to amortize an asset?
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Amortization is an accounting term that refers to the process of allocating the cost of an intangible asset over a period of time. It also refers to the repayment of loan principal over time.
Why do we use amortization?
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Amortization of an intangible asset is the equivalent to depreciating a tangible asset like equipment. Intangibles are assets like patents and licenses that are of significant value to a company and have an estimated useful life. The cost is amortized over the useful life to record expenses in the period they are used.
How does an amortization loan work?
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Paying down a balance over time. Amortization is the process of spreading out a loan into a series of fixed payments over time. You'll be paying off the loan's interest and principal in different amounts each month, although your total payment remains equal each period. This most commonly happens with monthly loan , but amortization is an accountin