BY THE NUMBERS Subscribe
Menu
Episodes Results calendar Glossary About YouTube channel

Amortization

The accounting charge that spreads the cost of intangible assets, such as bought technology and customer contracts, over the years they're expected to be useful. It lowers profit, but no cash leaves the company when it's recorded.

Simple example

A company pays $100 for a software licence that lasts five years. Instead of counting $100 as a cost in year one, it records $20 as an expense in each of the five years.

$100Paid once$20Year 1$20Year 2$20Year 3$20Year 4$20Year 5…recorded as a $20 expenseevery year for 5 years
Made-up numbers, for illustration only.

Related terms

DepreciationSpreading the cost of machines and buildings over the years they're used.GoodwillThe part of an acquisition price above the assets you can list.EBITDAEarnings before interest, taxes, depreciation and amortization.