Why amortisation matters to a first-time founder
Amortisation has two main meanings. In accounting, it spreads the cost of an intangible asset with a limited useful life across several periods. For a loan, it means repaying the amount borrowed on a schedule. One changes reported expense; the other changes cash payments and debt.
Examples of amortisation
A company records a €120,000 software licence that will be useful for four years. Spreading the cost evenly creates a €30,000 expense each year. Separately, monthly bank-loan payments reduce the amount borrowed and pay interest. The same word describes these two different processes.
Common misunderstanding
Accounting amortisation does not show an asset’s market value, and not every intangible asset is amortised. For a loan, amortisation means repaying the amount borrowed; interest is a separate charge. The detailed accounting and lending treatment depends on the relevant rules and contract.
When to use it
Say “intangible-asset amortisation” or “loan amortisation” when the context is unclear. For assets, record the expected useful life, calculation method and expected value at the end under the relevant accounting rules. For loans, review payments, interest, fees, final due date and any large final balance.
US spelling: amortization.