Amortization (accounting)

What is amortization (accounting)?

Amortization is the accounting method for spreading the cost of an intangible asset, like a patent, trademark, capitalized software, or acquired goodwill, over its useful life. Each period, a slice of the cost becomes a non-cash expense on the income statement. It's the intangible-asset counterpart to depreciation, which covers physical assets.

Worked example

Why it matters for fast-growing companies

Amortization affects reported earnings and, for some intangibles, taxable income, so how you capitalize and amortize things like software or acquisition costs shapes both your P&L and your tax position. Consistent treatment matters most during fundraising and M&A diligence, where buyers scrutinize how intangibles are valued and expensed.

Related terms

• Accounting & closeDepreciationDepreciation is the accounting method for spreading the cost of a tangible asset, like machinery, vehicles, or computers, across its useful life instead of expensing it all at once.
• Accounting & closeIncome statement (P&L)An income statement, also called a P&L, reports a company's revenue, expenses, and resulting profit or loss over a period of time, a month, quarter, or year.
• Accounting & closeBalance sheetA balance sheet is a financial statement showing what a company owns (assets), what it owes (liabilities), and the owners' stake (equity) at a single point in time.
• Accounting & closeJournal entryA journal entry is the record of a single business transaction, listing the accounts affected and the debits and credits that keep them balanced.

Frequently asked questions