Define concepts of depreciation and amortization.
I don't understand please help.
2007-09-20 15:26:41 · 3 answers · asked by Anonymous in Business & Finance ➔ Other - Business & Finance
Depreciation is the using up of an asset, like furniture or equipment. Assets get old from wear and tear and technological obsolescence. Chairs and tables will get rickety from use and one fine day, you can't use them anymore. Depreciation is to recognise this "using up". That is why you estimate the useful life in order to calculate depn. If you think your table of $600 can be used for 3 yrs before you have to throw it away, you depreciate $200 each yr.
Amortization is the same concept of using up, only you apply it to intangible assets like goodwill. Depn is used for tangible assets. You also amortize things like bonds discount and bonds premium, but I don't think you've reached that stage yet and I don't wish to confuse you.
2007-09-20 19:46:27 · answer #1 · answered by Sandy 7 · 0⤊ 0⤋
Depriciation is a reduction of value as a piece of equiptment ages.Its an allowable tax devaluation on your investment(equiptment).Amortization,is the amout of interest a loan(usually a property loan) will make over the given period of time for a set amout of interest.Hope thats not too confusing.....George
2007-09-20 22:38:20 · answer #2 · answered by tgeorge12000 4 · 0⤊ 0⤋
They are both use to measure the decrease of an item's value over time.
Depreciation is calculated on tangible items - bldgs, bldg improvements, and other fixed assets (autos, furniture & fixtures, etc).
Amortization is calculated on intangible items - goodwill, customer lists, patents, etc.
2007-09-21 10:21:55 · answer #3 · answered by clam001122 4 · 0⤊ 0⤋