Tuesday, May 29, 2012

Amortization Explained in a Single Sentence

I hope that this post is able to find itself in the hands of someone in the situation I was in for the longest time.

For the longest time I struggled with what exactly depreciation was. It didn't help that most of the information was usually prefaced with, "depreciation is a difficult concept for most people to understand." Well, I finally had that figured out.

But something was still nagging at me: what in the world is amortization?

I read and read and read. None of it seemed to make any sense. It seemed like the ugly step child of depreciation, only made reference to when there was no other alternative.

Finally though I spoke to Dave, the man who puts the Flemmer in FlemmerAssociates, if he could explain to me exactly what amortization was. And with a simple sentence, he cut through the fog and enlightened with the following simple explanation:

"Amortization is depreciation on intangible assets."

There it is! That's all you need to know.

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