What is amortization?

The definition of amortization in economics is the depreciación or reduction in the value of an asset or liability. For its part, in business terms, the concept of amortization has several meanings, although always associated with the value of a good or passive with the useful life of the same.

Amortization refers to the loss of value that any item registers over time, hence it is defined as a way to quantify the loss of value.

The term amortize is defined as the way to distribute the coste of an investment as an expense during the periods in which that investment will allow obtaining income. This concept is the accounting expression of the depreciation suffered by fixed assets, whether for technological reasons, the passage of time or use. To the expenses generated by the business activity must be added the amortization of the inmobilized material.

Amortization facilitates the calculation of expenses, whose difference with income helps to obtain the calculation of operating results and value the heritage Of a company. Through this term, the expense of the depreciación.

Objectives of the application of amortization

Below we detail what the amortization is for:

  • Show in accounting the loss of value of the items that are amortized.
  • Lets know the net worth of the elements.
  • It distributes during the years of useful life of the products that are amortized the cost originated by the depreciación of them.
  • Detract from the benefits the amortization part that, by compensating the loss of value of the fixed assets, allows the company to conserve the necessary resources to avoid decapitalization.

Amortization concepts

To better understand the concept of amortization, you must know a series of terms:

  • Useful life- The number of years that item can be used.
  • Residual value: the value of the asset at the end of its useful life.
  • Amortization base: difference between acquisition value and residual value.

And the early partial amortization?

Among the types of amortization that we can find, there is one that applies to debts, more specifically to mortgage loans. It is about early repayment, which allows us to reduce the amount of money we pay monthly or the duration of the loan. In fact for him calculation of the anticipated partial amortization shown by the specialized website Numdea, we must take into account the following aspects: the capital pending payment, the interest rate, the monthly payment that we pay at the moment and the amount of money that you want to amortize.

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