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What Is Difference Between Amortization And Depreciation



Difference
Depreciation and amortization words are hear daily as part of our accounting life. Now we will discuss about, what is Depreciation and Amortization.
Depreciation :
depreciation is a method of spreading the cost of a fixed asset over a specific period of time, normally the course of its useful life.
Amortization :
Amortization is a method of spreading the cost of an intangible asset over a definite period of time, which is usually the asset's life
So that every asset must have wear and tear whether it is Tangible(Able to show, Touch, Feel Example : Building, Machinery, Printers etc..,) or Intangible(Can’t touch, Not able to show, Can’t feel Example : Goodwill, Brand name) So, every tangible asset cause wear and tear, that technical name is called as Depreciation and whereas amortization refers to “depletion in value of intangible assets”.  In Simple terms, Amortization Relates to intangible assets and depreciation relates to tangible assets.
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.
second difference 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 Accounting period and Depreciation Charged for according to  straight-line basis or written-down value or according to business policy.
Salvage value is considered in case of while calculating the depreciation and no matter of salvage value in case of amortization.
Depreciation and amortization have similar Points also:

For example:
  1. Non-cash Expenditure: Both depreciation and amortization are non-cash expenses - that means, the company does not suffer a cash reduction when these expenses are recorded. These Expenses are to be recorded in the debit side of the “Profit and loss account.”
  1. Balance sheet Reporting : Both depreciation and amortization are treated as Deductions from Respective fixed assets in the balance sheet, and may even be aggregated together for reporting purposes.
  1. Both depreciation and amortization are recognized expenses for tax purposes