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Understanding AMORTATION

Amortization

Amortization - In Accounting Sciences recognize the name of a decline in value or depreciation of an asset that has a long economic life. Assets that have a relatively long economic life are Fixed Assets and Intangible Assets. Examples of Fixed Assets such as Land, Buildings, Machines, vehicles and others and examples of Intangible Assets are Patents, Trademarks, Goodwill and others. All assets have an economic life and experience a decline in value at any time. Now the decline in value in the Definition of Accounting is known as Depreciation (depreciation) for Fixed Assets and Amortization (amortization) for Intangible Assets.


Depreciation is a systematic allocation of nominal amounts that can be depreciated over a fixed asset over the useful life (economic life) of the asset. and whereas Definition of Amortization is a decrease or reduction in the value of an intangible asset in stages within a certain period of time in each accounting period. Reduction in the value of intangible assets is done by debiting the amortization expense account and crediting the intangible asset account. so it looks the difference:

Fix Asset	:	Depreciation
Intangible Asset	:	Amortization

Jornal Example :

Debit	|	Goodwill Amortization          Expense		Rp100
Kredit	|	Goodwill			Rp100

Another definition of Amortization states that amortization is a Non-Notification Loan, an accounting procedure that by gradually reducing the value of costs and an asset with a limited economic life or other intangible assets through periodic loading to income. Amortization can also mean reducing liabilities with regular payments of principal and interest in a certain amount until the loan is paid when the due date.


For example, if the cost is IDR 10 million and must be amortized for 10 years, the financial report will present a fee of IDR 10 million / year for 10 years. if the costs are not amortized right, all IDR 10 million will appear in the financial statements as a burden when the year of the expenditure is carried out.

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