In accounting, amortization refers to the practice of spreading out the expense of an asset over a period of time that typically coincides with the asset’s useful life. Amortizing an expense is useful in determining the true benefit of a large expense as it generates revenue over time. The amounts of each increment of a spread-out expense as reported on a company’s financials define amortization expenses. Amortization practices reflect a more accurate cost of doing business in a company’s financial reporting, as the benefits of an initial expense may continue long after the initial report of that expense.
A broader amortization definition includes the process of gradually paying off a debt over a set amount of time and in fixed increments, commonly seen in home mortgages and auto loans.