The systematic process of allocating the amortized amount/ amortized cost (the principal) of a financial asset (broadly any intangible asset) over its time to maturity. It involves writing down the capital value of the asset over a period of time in an entity’s accounts. The overall period (term) is usually divided to regular intervals in each of which the cost of the asset is incrementally charged to an expense account. In general, it is the allocation of a balance sheet item to a corresponding expense on the statement of income. In this sense, amortization is conceptually similar to depreciation.(though the latter is concerned with physical assets, also known as depreciable assets).

An example is the spreading of the balance in the contra-liability account (e.g., discount of bonds payable) to the expense account (interest expense) over the lifespan of the bonds. In accounting double entry, the following entry will be made in every period on a regular basis until the bonds are entirely amortized:

Bond interest expense (debit)

Discount on bonds payable (credit)

Amortization is also used to allocate asset balances, such as discount on notes receivable, deferred charges, and specific types of intangible assets.

By nature, amortization is implemented using the straight-line method (as opposed to depreciation where a variety of methods can be used in addition to straight-lining). A distinctive feature of the amortized assets/ amortizable assets is that such assets do not have a salvage value (just contrary to depreciable assets). This all prompts a distinction between amortization and depreciation, which at times are used interchangeably to denote the same.