Amortization
Definition
The gradual write-off of the cost of an intangible asset (patents, goodwill, software licences) over its useful life — the intangible-asset equivalent of depreciation. Amortization also describes spreading loan repayments into equal periodic instalments of principal and interest. HelloBooks posts amortization schedules automatically.
Related Terms in Core Accounting
Accrued Expenses
Costs a business has incurred but not yet been billed for or paid, recorded as a liability so the expense lands in the period it belongs to. Typical examples are wages earned but unpaid at month end, interest, and utilities consumed before the invoice arrives. Reversed when the actual bill is booked.
Accrued Revenue
Revenue earned by delivering goods or services that has not yet been invoiced to the customer, recorded as an asset. Common on milestone contracts and retainers where work is performed in one period and billed in the next. The opposite situation to deferred revenue.
Allowance for Doubtful Accounts
A contra-asset account that reduces accounts receivable by the portion management expects never to collect. Estimated from historical loss rates or an aging analysis, it keeps receivables stated at realisable value instead of face value. Also called the provision for bad debts.
Asset
A resource the business controls that is expected to produce future economic benefit. Split into current assets, convertible to cash within a year, such as cash, receivables and inventory, and non-current assets like equipment, property and intangibles. One side of the accounting equation: Assets = Liabilities + Equity.
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