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Amortization: Definition and Meaning
Definition
Amortization is the systematic allocation of the cost of an intangible asset or certain financing costs over a defined period.
Why It Matters
Amortization recognizes that some assets or costs provide benefits over more than one accounting period. It helps match the recorded cost with the periods that benefit from the asset or arrangement.
The appropriate amortization method and period depend on the nature of the asset or cost, applicable accounting rules, and the facts of the arrangement.
Example
A business purchases a software license expected to benefit operations for several years. It may record amortization expense over the estimated useful life of the license.
Related Terms
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