What is Amortization?

There are three methods of expensing an asset to the income statement. The most common method is depreciation. Mining, oil, and natural resource operations use depletion (amount removed versus the estimated volume on hand). Non-physical assets are expensed to the income statement or profit and loss statement via a method called amortization. It is most commonly used in the mortgage industry to refer to the monthly payment made to pay interest and the principle (the amortizable portion) on a debt instrument.