amortization

  

Definitions (2)

1.Accounting: Preferred term for the apportionment (charging or writing off) of the cost of an intangible asset as an operational cost over the asset's estimated useful life. It is identical to depreciation, the preferred term for tangible assets. The purpose of both terms is to (1) reflect reduction in the book value of the asset due to usage and/or obsolescence, (2) spread a large expenditure proportionately over a fixed period, and thereby (3) reduce the taxable income (not the actual or cash income) of a firm. In effect, it is a process by which invested capital of a firm is recovered by gradual sale of the firm's asset(s) to its customers over the years.
2.Banking: Gradual repayment of a loan in equal (or nearly equal) installments which include portions of interest and principal amounts. See also level payment amortization.

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