What is amortization? (Depreciation vs Amortization)

Master Depreciation Accounting with Advanced Excel Model What is Depreciation? What is amortization? And related terms
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Transcript

In this section I will explain you what is the difference between depreciation and amortization. amortization is applicable to intangible assets only, term amortization is nothing but depreciation which is charged at equal rate to income statement over useful life of an intangible asset. intangible asset does not have a physical form for example, patents trademarks cost of research and development goodwill which you may have bought, while depreciation is charged during concern for tangible assets. tangible assets are asset which you can physically see in touch. depreciation is charged at various rates and methods to income statement for tangible assets, example of tangible assets our factory or office building plant and equipments furniture smarter vehicles. What are the key differences?

Amortization is almost always conducted on straight line basis while depreciation can be charted accelerated basis, straight line basis declared in basis I will explain all these methods are depreciation in later section of this course, amortization calculation does not usually incorporate any salvage value compared to tangible asset which may have some salvage value. I will also explain you the term salvage value in later section of this course, the calculation of amortization does not usually incorporate any salvage value. Since an intangible asset is not physically considered to have any resale value finds it useful life has expired, while tangible assets which may have some salvage value. So, the amount of salvage value is likely to be included in depreciation calculation. What are the similarities between the term depreciation and amortization non cash what depreciation and amortization are non cash expense that is complete does not suffer a cash deduction when these expenses are recorded in books.

They are not actual expenditure which you have paid in cash to some other party or supplier. Reporting shown as reduction from fixed assets and balance sheet, more depreciation and more dilution are treated as reduction from the fixed asset in the balance sheet.

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