Amortization

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.