Amortization and depreciation are both important topics that you need to explore for your investment needs as they can negatively influence the value of whatever you have. They have similar points but they are still different from one another in many important ways.
What Is Amortization?
Amortization is the process of paying off debts with a fixed schedule. That is, you will pay regular installments on your debts over time. This sounds great in theory but the truth is that amortization can end up hurting the value of your investment.
The cost of acquiring an asset will be spread out over its lifetime. Each payment is recorded as an expense on your income statement. This means that you will be paying the same amount of money in a certain period over an extensive amount of time.
What About Depreciation?
Depreciation is a different term in that it refers to how the value of your investment will decline over time. Specifically, the cost of whatever you have will be spread out over the expected life of your investment. This is also commonplace for property and car investments. The cost is spread out long enough with a part of the cost being used as expenses during every tax year.
The Key Difference
The main difference between these two is that amortization refers to the cost of an intangible asset. This can include something like a trademark, a customer list or domain name.
Meanwhile, depreciation is for tangible assets that you can physically use. These include things like property buildings and vehicles.
Depreciation entails some kind of salvage value while this is not found in an amortization process. The salvage value refers to the resale value of the product at the end of its useful life.
How Much Is Reported?
The value of amortization is typically the same throughout the life of the investment, what with the payments on whatever you have being fixed. This is different for depreciation in that this process entails the value being much higher early on in the life of an investment. The value that may be used will vary based on the time period that you are getting an investment ready in.
You have to be certain when getting your investments ready that you know how amortization and depreciation can vary. These are good values that deserve to be explored as they can impact the values of whatever you might have.