Amortization

Amortization refers to the repayment of a debt in small periodic installments of principal and interest, as determined by an amortization schedule. Amortization is mainly used in calculating loan repayments, such as a mortgage. Under the amortization repayment model, payments are distributed into equal sums over the life of a loan, making amortization a popular model. In accounting, amortization is often used to write off an intangible asset (such as a copyright) over the period of its estimated useful life or other pre-determined period. Amortization cannot be used if an intangible asset has an indefinite useful life. Amortization is often confused with depreciation, which is the reduction of the value of a tangible asset over its estimated useful life, based on everyday wear and tear and the affects of time. Amortization also differs from depletion, which is the process of decreasing the value of a taxable natural resource.