Difference between revisions of "Amortization"

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'''Amortization''' is an accounting term that means the [[depreciation]], depletion, or charge-off to expense of intangible and tangible assets over a period of time.   
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In accounting, '''amortization''' refers to the charge-off to expense of intangible assets over a period of time.  It is similar to the concept of [[depreciation]] for tangible assets, except that generally amortization is done on a straight-line basis.  Also [[goodwill]] is not subject to amortization.
  
It is the running down or payment of a [[loan]] by installments. An example is a repayment [[mortgage]] on a house, which is amortized by making monthly payments that over a pre-agreed period of time cover the value of the loan plus interest. With loans that are not amortized, the borrower pays only interest during the period of the loan and then repays the sum borrowed in full.
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The term is also used in [[real estate]] to refer to the "amortization schedule", a listing of each normal monthly payment on a [[mortgage]] which breaks down how much is allocated to interest, principal, and escrow. (The schedule does not take into consideration any accelerated or additional payments which the homeowner may choose to make along with the normal monthly payment.)
 
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For example, in the energy industry the term often means either (1) the periodic charge-off to expense of the costs associated with nonproducing mineral properties incurred prior to the time when they are developed and entered into production or (2) the systematic charge-off to expense of those costs of productive mineral properties (including tangible and intangible costs of prospecting, acquisition, exploration, and development) that had been initially capitalized (or deferred) prior to the time the properties entered into production, and thereafter are charged off as minerals are produced.
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[[Category:Accounting]]
 
[[Category:Accounting]]
[[Category:Energy]]
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[[Category:Real Estate]]
[[Category:Economics]]
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Revision as of 16:42, March 2, 2018

In accounting, amortization refers to the charge-off to expense of intangible assets over a period of time. It is similar to the concept of depreciation for tangible assets, except that generally amortization is done on a straight-line basis. Also goodwill is not subject to amortization.

The term is also used in real estate to refer to the "amortization schedule", a listing of each normal monthly payment on a mortgage which breaks down how much is allocated to interest, principal, and escrow. (The schedule does not take into consideration any accelerated or additional payments which the homeowner may choose to make along with the normal monthly payment.)