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Definition and Examples of


Explanation: Amortization is the process of spreading the cost of an intangible asset over its useful life. It’s similar to depreciation but is used for assets like patents and software.

Example: If you buy a software license for your design business for $5,000 with a useful life of 5 years, you amortize $1,000 per year.

Potential Issues: Incorrect amortization of intangible assets can lead to inaccurate reporting of expenses and assets. Over-amortizing reduces net income unnecessarily, while under-amortizing inflates it, affecting business valuation and tax liabilities.

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