Amortization Definition, Meaning And Explanation

Previously, we studied about “Depreciation Definition”, but here we will consider about Amortization Definition, its meaning and brief explanation on it.

Amortization Definition

It is the systematic allocation of the cost of an Intangible Non Asset over its useful life. Amortization on Intangible Non Current Assets like, Goodwill, Patents, Franchise, etc is the same as in case of Depreciation on Tangible Non Current Assets.

Amortization Expense is calculated for the year on Intangible Assets to estimate useful life of Assets.

Amortization Journal Entry

When amortization is charged on Intangible Assets, then following Accounting Journal Entry is Passed in the Book or Journal of Company:

                    Amortization Expense a/c XXX

                                                          Accumulated Amortization a/c XXX

(Amortization on Intangible Non Current Assets is Charged)

As Accumulated Amortization is a Contra Asset Account, so it is deducted from relevant Intangible Non Current Assets on Balance Sheet while Amortization Expense is recorded in Income Statement / Profit And Loss Account for the accounting period.

So, Intangible Non Current Assets having no physical existence and these are long term in nature. Also, these require significant cost for development and acquisitions.