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Definition: Amortization refers to the gradual reduction of an intangible asset (such as goodwill) on the balance sheet. It can also refer to the reduction of a debt by making regular payments (e.g. a home mortgage).
Advice: When an asset is thought to decrease in value, a company amortizes it. However, amortization is most commonly used to refer to the amortization of debts. When you make a debt payment, part of it goes to interest and the other part goes to principal. The gradual reduction in principal through regular payments is called amortization.
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