Amortized (verb):
1. To gradually reduce or pay off a debt or loan over a specific period of time through regular payments, typically including both principal and interest.
Example: The homeowner amortized their mortgage by making monthly payments over a span of 30 years.
2. To distribute or allocate the cost or expense of an asset or investment over its useful life or a specific period, typically for accounting or financial purposes.
Example: The company amortized the cost of the new machinery over five years to accurately reflect its value on the balance sheet.
3. To gradually decrease or write off the value of an intangible asset, such as a patent or copyright, over its estimated useful life.
Example: The software company amortized the development costs of their new application over three years to align with its expected revenue generation.
4. To spread out or smooth the impact of a large expense or investment over time, reducing its immediate financial burden.
Example: The university amortized the construction costs of the new campus building by securing a long-term loan and paying it off in installments.
Amortized refers to the process of spreading out the repayment of a loan or the cost of an intangible asset over a specific period of time. This is typically done through regular, equal payments that cover both the principal amount and the interest. Amortization is commonly used in the context of mortgages, where borrowers make monthly payments that gradually reduce the outstanding balance of the loan. In accounting, amortization is also used to allocate the cost of intangible assets, such as patents or trademarks, over their useful life. This process helps to accurately reflect the consumption of the asset’s economic benefits over time.
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This glossary post was last updated: 29th March 2024.
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