What is amortization?

Amortization, put quite simply, is a process in business of splitting a single lump sum expense or payment, such as the construction of a new building, into multiple separate scheduled payments over time. A common example of an amortization is a loan. In the case of a loan, each payment is applied to interest, and to the principal. Amortization can also apply to accounting; and accounting amortization refers to the way in which an expense is paid for over time -- this may or may not involve a loan -- the time in this case is typically the useful life of the item (for example, for building this might be 100 years).

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