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Amortization

From Wikipedia, the free encyclopedia


Amortisation (or amortization) is the process of decreasing or accounting for an amount; over a
period. The word comes from Middle English amortisen to kill, alienate in mortmain, from Anglo-French
amorteser, alteration of amortir, from Vulgar Latin admortire to kill, from Latin ad- + mort-, mors death.
Applications of Amortization
When used in the context of a home purchase, amortization is the process by which loan
principal decreases over the life of a loan, typically an amortizing loan. With each mortgage
payment that is made, a portion of the payment is applied towards reducing the principal, and
another portion of the payment is applied towards paying the interest on the loan. An
amortization schedule, a table detailing each periodic payment on a loan, shows this ratio of
principal and interest and demonstrates how a loan's principal amount decreases over time. An
amortization schedule can be generated by an amortization calculator. Negative amortization is
an amortization schedule where the loan amount actually increases through not paying the full
interest.
In business, amortization allocates a lump sum amount to different time periods, particularly for
loans and other forms of finance, including related interest or other finance charges.
Amortization is also applied to capital expenditures of certain assets under accounting rules,
particularly intangible assets, in a manner analogous to depreciation.
In tax law, amortization refers to the cost recovery system for intangible property.
In computer science, amortized analysis is a method of analyzing the execution cost of
algorithms over a sequence of operations.
In the context of zoning regulations, amortization refers to the time in which a property owner
has to conform or relocate when the property's use constitutes a preexisting nonconforming use
under amended zoning regulations. Specifically it is the ability of the owner of the property to
recoup his/her investment during that time.
See also
Tax amortization benefit
References
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Categories: Accounting
This page was last modified on 7 May 2014 at 11:18.
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