The technique of spreading out an asset’s expense over a period of time that normally corresponds with the asset’s useful life is known as amortization in accounting. Since a significant expense produces income over time, amortizing it can help determine its genuine benefit. Amortization costs are determined by the sums of each division of a spread-out expense as shown on a company’s financial statements. Because the advantages of an initial expense may last for a long time after the original report of that expense, amortization techniques reflect a more accurate cost of doing business in a company’s financial reporting.

A broad definition would be amortization is a tool used in the process of repaying debt over time with consistent principal and interest payments. Through periodic payments, an amortization schedule is used to lower the outstanding balance on a loan, such as a mortgage or a vehicle loan.

Most accounting and spreadsheet programs provide tools for automatically calculating amortization.

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