Amortisation is the process of writing off a cost in equal (or planned) pieces over a set period. For a loan, it means each payment covers some interest and some principal until the balance hits zero. For an intangible asset such as software rights or a patent, it means charging a portion of the purchase cost to expense each year.
Key takeaways
- Loan amortisation schedules show how much of each payment reduces the principal.
- Accounting amortisation applies mainly to intangible assets, while depreciation covers physical assets.
- Shorter amortisation periods hit profit harder each year but clear the cost faster.
- Always check whether a company is amortising large intangibles that could mask cash reality.