Accounting Terms Dictionary

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Amortization is expensing the cost of an intangible asset.

Let’s say you buy an intangible asset like a patent for $15,000. If the patent does not expire for 15 years, you will be able to benefit from it for the next 15 years. The patent will be used up in 15 years. $15,000 divided by 15 = $1,000. Every year I will use up $1,000 of the cost of the patent so I will deduct $1,000 every year and call it amortization.

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