Amortization and depreciation are accounting methods used to allocate the cost of assets over their useful lives. Amortization applies to intangible assets like patents and trademarks. Depreciation deals with tangible assets like buildings,
The article from MSN Money discusses the differences between amortization and depreciation, two accounting methods used to allocate the cost of an asset over its useful life. Amortization typically applies to intangible assets like patents or copyrights, where the cost is spread out evenly over the asset's useful life. For example, if a company acquires a patent for $10,000 with a 10-year life, it would amortize $1,000 each year. Depreciation, on the other hand, deals with tangible assets like machinery or vehicles, where the value decreases over time due to wear and tear or obsolescence. Methods for calculating depreciation include straight-line, where the cost is evenly spread, or accelerated methods like double-declining balance, which front-loads the expense. An example given is a $50,000 piece of equipment with a 5-year life, depreciating at $10,000 per year using the straight-line method. The article emphasizes that while both methods reduce the book value of assets over time, they serve different purposes and apply to different types of assets, affecting financial statements and tax calculations differently.
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