Amortization has two primary meanings related to finance and accounting:

1. Amortization in Accounting (Intangible Assets)

Amortization is an accounting technique used to gradually write down the cost of an intangible asset over its useful life. Intangible assets include patents, trademarks, copyrights, franchise agreements, and organizational costs. Since these assets provide value over time rather than all at once, amortization spreads their cost evenly across their expected useful life, typically using the straight-line method. This expense reduces the asset's book value on the balance sheet and is recorded as an expense on the income statement. Unlike depreciation (used for tangible assets), amortization usually assumes no salvage or residual value for the asset

2. Amortization in Loans (Debt Repayment)

Amortization also refers to the process of paying off a loan through regular payments that cover both principal and interest. An amortization schedule details each payment and shows how the portion going toward interest decreases over time while the portion paying down the principal increases. This method ensures the loan is fully paid off by the end of the agreed term. Loan amortization helps borrowers understand how much they owe at any point and manage their debt effectively

Summary

• Accounting amortization : Spreading the cost of intangible assets over their useful life.
• Loan amortization : Systematic repayment of debt through scheduled payments of principal and interest.

Both uses involve the concept of gradual reduction in value or balance over time but apply to different financial contexts