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Amortization (business)
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.
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.
Accounting
In accounting, amortization refers to the gradual recognition of certain expenses associated with intangible assets such as trademarks, copyrights, goodwill and so on, typically over a period of several years. The expenses are initially added to the value of the asset, and transferred from the balance sheet to the income statement using a fixed schedule, usually a constant amount per month (or other accounting period).
The corresponding concept for tangible assets is termed depreciation. Methodologies are mostly the same, although any method other than straight-line is unusual for depreciation. There are other technical distinctions as well, mostly of interest to the corporate income tax professional.
The proper use of amortization allows the organization to properly recognize that such expenses contribute to productivity or profitability over a relatively long period. The determination of which intangible assets can be amortized and what period to use can have significant effects on the apparent profitability of an enterprise, and consequently can affect the stock price of a publicly traded corporation. It can also significantly affect the corporation's tax liability, and is an area of concern for those who must comply with the Sarbanes-Oxley act.
Write-off
In accounting a write off is a one time charge (cost) of an amortized fixed asset. Writing off is the expensing of a balance sheet asset (item) that has no future benefits. An example would be the writing off of goodwill. That is, the worthless asset will be recorded as an expense on the current period's income statement rather than keeping it on the balance sheet as an asset.
Other meaning
Write-off may also be used to describe a cost that is a legitimate cost for the company that reduces taxable income.
Source
See: Wikipedia
