From Yahoo Finance: 2025-03-20 18:41:00

Amortization and depreciation are accounting methods that allocate the cost of assets over their useful lives. Amortization applies to intangible assets, while depreciation applies to tangible assets. A financial advisor can help apply these methods to reduce taxable income and improve cash flow.

Amortization gradually pays off debt or allocates the cost of intangible assets over their useful life. This helps manage loans and investments more effectively. Scheduled payments for loans like mortgages, car loans, and business loans contribute to reducing the outstanding balance.

Depreciation is the decrease in value of physical assets over time due to wear and tear. Businesses use it to account for aging equipment. Different methods like straight-line and declining balance impact how assets are costed over their useful lives.

Both amortization and depreciation affect financial statements by reducing taxable income. Depreciation can have a more immediate impact on tax benefits, while amortization provides a steady and predictable expense over time.

Amortization and depreciation differ in the type of assets they apply to-tangible and intangible, respectively. Depreciation methods can vary, while amortization typically follows a straight-line approach. Both methods reduce taxable income and impact financial statements differently.

Businesses track amortization and depreciation for tax benefits and financial accuracy. Tax laws govern these methods, allowing for accelerated depreciation. Book methods focus on long-term asset value, while tax methods optimize short-term cash flow and tax liabilities.

Read more: Amortization vs. Depreciation: Differences and Examples