The key difference between amortization and depreciation is that amortization is used for intangible assets, while depreciation is used for tangible assets.
Finally, because they are intangible, amortized assets do not have a salvage value, which is the estimated resale value of an asset at the end of its useful life.
What is an example of amortization?
Amortization is the process of incrementally charging the cost of an asset to expense over its expected period of use, which shifts the asset from the balance sheet to the income statement. Examples of intangible assets are patents, copyrights, taxi licenses, and trademarks.
What is included in depreciation and amortization?
Amortization and depreciation are non-cash expenses on a company’s income statement. Depreciation represents the cost of capital assets on the balance sheet being used over time, and amortization is the similar cost of using intangible assets like goodwill over time.
What is amortization of assets?
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.
What are the similarities and differences between the terms depreciation depletion and amortization?
Depreciation spreads out the cost of a tangible asset over its useful life, depletion allocates the cost of extracting natural resources such as timber, minerals, and oil from the earth, and amortization is the deduction of capital expenses over a specified time period, typically the life of an asset.