Accounting Examples: Amortization - Amortize capital purchases over a period of time to recover costs for intangible assets.

Our Other Sites:

How To eDo It

Free Online Courses

Amortization

Amortization, like depreciation, is the process of deducting, over a set period of time, the costs incurred in the procurement of assets.  Whereas depreciation is used to expense out (over the useful life) the costs of  tangible assets such as buildings, furniture, and machines; amortization is used to recover the cost of intangible assets such as:

• Going into Business Costs - start up expenditures, cost of incorporating, etc.

• Lease for Business Property

• Goodwill, patents, customer base, permits, etc.

• Reforestation Costs - direct costs of planting or seeding

• Pollution Control Facilities

When the intangible asset is originally purchased the cost should be debited to an asset account.  This cost is then "written off" or amortized, using the straight line method, over the legal useful life of the asset (see IRS Publication 535 Chapter 9 for amortization period guidelines).  The straight line method is simply dividing the initial cost of the asset by its useful life.  For example if a patent is purchased for $12,000 and amortized over 15 years (180 months) then the monthly write-off would be $66.67.

Learn Accounting
AccountingCoach - Downloadable, printable Ebook
Contains 27 accounting topics, 16 Accounting Exams (40 questions each), 52 Printable Crossword Puzzles, 175 Question Bookkeeping Test, Quick View of Basic Accounting "Cheat Sheet" and more.  Click here to view more details

Amazon.com
Popular books for Amortization

Monthly Interest Amortization Tables

Loan amounts of $50 to $300,000. Interest rates of 2% to 25.75%. Terms up to 40 years.