Amortization (Income Stmt)

What does it mean

Amortization is the recognition of the cost of an intangible asset that benefits a business over a period of more than one year across the useful life of the intangible asset.  What Depreciation is to Tangible Assets, Amortization is to Intangible Assets.  For a better understanding of how Amortization impacts a balance sheet and income statement, please checkout the description of Depreciation.  Overall the same principals apply, but always remember, Amortization is for intangible assets, not tangible assets.  

Why does it matter

One reason amortization should be important to a banker is because amortization expense on the income statement is a “non-cash” expense.  What that means is that the expense included which reduces “taxable” income, but it is not like you write a check to someone for amortization.  What that means is that the “amortization” expense is still sitting in the borrower’s checking account, and it can still be used to pay our loans. 

Other Relevant Terms

• Capacity
• Capital
• Balance Sheet
• Income Statement
• Return to Terminology Library