what is the difference between depreciation and amortization?

Question

if both depreciation and amortization are just deduction in value of an asset, why shud we use two different terms.(though they are for tangible and intangible assets)

Answer 1

Depreciation is an accounting and finance term for the method of attributing the cost of an asset across the useful life of the asset. Depreciation is an example of applying the matching principle as per generally accepted accounting principles.

Depreciation is a reduction in the value of a currency in floating exchange rate.




Amortization is the distribution of a single lump-sum cash flow into many smaller cash flow installments, as determined by an amortization schedule. Unlike other repayment models, each repayment installment consists of both principal and interest. Amortization is chiefly used in loan repayments (a common example being a mortgage) and in sinking funds. Payments are divided into equal amounts for the duration of the loan, making it the simplest repayment model. A greater amount of the payment is applied to interest at the beginning of the amortization schedule, while more money is applied to principal at the end.

The amortization calculator formula is: (1-vn)/i, where n = number of years, v = 1/(1+i), and i = interest rate / 100.

Divide by (1+i) if a payment is due at the beginning.

Another method of writing this kind of formula is:

where: P = principal amount borrowed i = periodic interest rate n = number of periods A = periodic payment.

Answer 2

Difference Between Depreciation And Amortization

Answer 3

depreciation: Depreciation is an accounting and finance term for the method of attributing the cost of an asset across the useful life of the asset. Depreciation is an example of applying the matching principle as per generally accepted accounting principles. Depreciation is a reduction in the value of a currency in floating exchange rate. Depreciation is often mistakenly seen as a basis for recognizing "wear and tear", obsolescence, or impairment on an asset, but these issues, where seen as significant enough to account for, are handled through an asset revaluation reserve. The use of depreciation affects the financial statements and in some countries the taxes of companies and individuals. In economics depreciation is the decrease in value of the capital stock, physical depreciation. If capital stock is C0 at the beginning of a period, investment is I and depreciation D, the capital stock at the end of the period, C1, is C0 + I - D

Amortization:Amortization is the distribution of a single lump-sum cash flow into many smaller cash flow installments, as determined by an amortization schedule. Unlike other repayment s, each repayment installment consists of both principal and interest. Amortization is chiefly used in loan repayments (a common example being a mortgage) and in sinking funds. Payments are divided into equal amounts for the duration of the loan, making it the simplest repayment . A greater amount of the payment is applied to interest at the beginning of the amortization schedule, while more money is applied to principal at the end. The amortization calculator formula is: (1-vn)/i, where n = number of years, v = 1/(1+i), and i = interest rate / 100. Negative amortization (also called deferred interest) occurs if the payments made do not cover the interest due. The remaining interest owed is added to the outstanding loan balance, making it larger than the original loan amount

Answer 4

Amortization usually refers to spreading an intangible asset's cost over that asset's useful life. For example, a patent on a piece of medical equipment usually has a life of 17 years. The cost involved with creating the medical equipment is spread out over the life of the patent, with each portion being recorded as an expense on the company's income statement. Depreciation, on the other hand, refers to prorating a tangible asset's cost over that asset's life. For example, an office building can be used for a number of years before it becomes run down and is sold. The cost of the building is spread out over the predicted life of the building, with a portion of the cost being expensed each accounting year. .

Answer 5

I believe you just answered your own question.

Answer 6

what is depletion