Amortization

Amortization is the process of spreading a value over a period and reducing that value periodically. The word may refer to either reduction of an asset value (spreading advance payment over invoices) or reduction of a liability (periodic payment towards a loan).  

For example, you may pay rent to your vendor for one year in a single payment. And, you will not account the whole rent value during the month of payment, instead you’d split it into 12 parts and each part would be accounted in each subsequent months. Here, the asset value is amortized. 

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Related Terms

• Assets
• Accrual Basis Accounting
• Audit
• Audit Trail