The difference between amortization and

depreciation
April 12, 2021
The key difference between amortization and depreciation is that amortization charges off
the cost of an intangible asset , while depreciation does so for a tangible asset .

Another difference between the two concepts is that amortization is almost always
conducted on a straight-line basis , so that the same amount of amortization is charged to
expense in every reporting period . Conversely, it is more common for depreciation expense
to be recognized on an accelerated basis , so that more depreciation is recognized during
earlier reporting periods than later reporting periods.

Yet another difference between amortization and depreciation is that the calculation of
amortization does not usually incorporate any salvage value , since an intangible asset is not
typically considered to have any resale value once its useful life has expired. Conversely, a
tangible asset may have some salvage value, so this amount is more likely to be included in
a depreciation calculation.

The two concepts also share several similar traits. For example:

 Non-cash. Both depreciation and amortization are non-cash expenses - that is, the
company does not suffer a cash reduction when these expenses are recorded.

 Reporting. Both depreciation and amortization are treated as reductions from fixed
assets in the balance sheet , and may even be aggregated together for reporting purposes.

 Impairment. Both tangible and intangible assets are subject to impairment , which means
that their carrying amounts can be written down . If so, the remaining depreciation or
amortization charges will decline, since there is a smaller remaining balance to offset.

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depreciation.html