Amortization is a financial accounting process involving the gradual reduction of a debt or an intangible asset’s value over time.
Typically applied to loans or mortgages, amortization allocates periodic payments towards both principal and interest, ensuring the debt’s gradual repayment by the end of its term.
In the context of intangible assets like patents or copyrights, amortization reflects the spreading of acquisition costs over the asset’s useful life. This systematic approach aids in accurate financial reporting and aligns expenses with the asset’s economic benefits.