Amortization

Definition

The regular installment payment schedule established to pay off a debt.

Capital expense deduction of a long-term business asset, similar to depreciation.

What It Means

The loan amortization sets the amount of periodic payments required to pay off a debt obligation. Each payment in the schedule is used to pay interest on the loan and reduce its principal.

A long-term asset amortization indicates a rate of consumption of the asset as it is used in the business. Business owners can use amortization as a non-cash expense which reduces their taxable income.