Amortization

Amortization is defined as the expiration of intangible assets such as patents or goodwill.  One of the problems with calculating the amortization schedule for an intangible asset is determining their useful lives.  To help solve this problem an intangible asset cannot be amortized over a time period that exceeds 40 years. Amortization of intangible assets generally occurs on a straight-line basis.

As is the case with depreciation, the amortization of an intangible asset is shown as an expense of the company, thereby reducing net income over the years the benefit is realized.