Terms

Amortization

Amortization is an accounting method for spreading the cost of an intangible asset over its useful life, and it also refers to the process of paying off a loan through scheduled installments. For intangible assets like patents or copyrights, the cost is gradually expensed to reflect the asset's consumption over time. In the context of a loan, such as a mortgage, amortization involves making regular payments that cover both principal and interest to systematically reduce the outstanding debt.

Importance of Amortization in Financial Planning

Amortization is a cornerstone of sound financial planning for both businesses and individuals. It provides a clear roadmap for managing the costs of assets and the repayment of debts over time. This systematic approach enhances financial stability and decision-making in several key ways:

  • Budgeting: Provides predictable schedules for expenses and loan payments, aiding in cash flow management.
  • Valuation: Accurately reflects the declining value of assets and aligns costs with revenues for a clearer financial picture.
  • Taxes: Creates deductible expenses that can lower a company's taxable income and overall tax liability.
  • Debt: Structures loan repayment, offering transparency into how principal and interest are paid down over time.

Common Amortization Schedules

Amortization schedules can be structured in various ways to suit different financial situations and asset types. The method of calculating payments can vary significantly, designed to accommodate different cash flow needs for borrowers or accounting standards for businesses.

  • Straight-Line: Spreads the cost of an asset evenly over its useful life.
  • French Method: Features constant payments, with interest being higher in the initial installments.
  • Increasing Balance: Involves payments that start small and grow larger over the loan's term.
  • Declining Balance: Requires larger initial payments that decrease over time, reducing overall interest.
  • Balloon: Includes smaller regular payments followed by a large lump-sum payment at the end.

Amortization vs. Depreciation

While both amortization and depreciation allocate an asset's cost over time, they apply to different asset types and follow distinct accounting rules.

  • Amortization applies to intangible assets like patents and copyrights. It typically uses a simple straight-line method, spreading the cost evenly over the asset's useful life without a salvage value. This method is required for intangibles, offering predictability for enterprises managing intellectual property costs.
  • Depreciation is used for tangible assets such as buildings and equipment. It offers more flexibility with methods like accelerated depreciation, which can provide greater tax benefits early on. Companies use it to account for wear and tear and an asset's salvage value, matching expenses to actual usage.

Impact of Amortization on Cash Flow

Amortization of intangible assets impacts cash flow indirectly by affecting taxable income and reported earnings.

  • Non-cash: A charge that reduces net income without an actual cash outlay.
  • Taxes: Lowers taxable income, which can increase after-tax cash flow.
  • Reporting: Added back to net income on the statement of cash flows.

Amortization in Different Industries

In business, amortization is used to systematically write down the value of intangible assets. Industries like technology and media heavily rely on this to expense patents, copyrights, and trademarks over their useful lives. The straight-line method is the standard practice, ensuring a consistent expense is recorded each year.

Conversely, in the financial sector, amortization structures loan repayments. Schedules for mortgages or commercial loans show how each payment reduces both principal and interest. This provides clarity for lenders and borrowers on the gradual payoff of debt.

Frequently Asked Questions about Amortization

Can an amortization schedule be changed?

Yes, loan amortization schedules can be altered through refinancing. For intangible assets, the amortization period can be adjusted if the asset's estimated useful life changes, though this requires proper accounting justification and disclosure to reflect the new economic reality accurately.

How is goodwill amortization handled differently?

Under US GAAP, public companies test goodwill for impairment annually rather than amortizing it, though private companies may elect to. IFRS strictly prohibits goodwill amortization, mandating only annual impairment tests. This distinction is crucial for financial reporting and valuation analysis.

What happens if an intangible asset is sold before being fully amortized?

If an intangible asset is sold, the company calculates a gain or loss by comparing the sale price to the asset's book value, which is its cost less accumulated amortization. This gain or loss is then recognized on the income statement for that period.

Other terms

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Employee Advocacy

Employee advocacy is the promotion of an organization by its staff members, who share positive messages and content through their personal networks.

Employee Advocacy

No Spam

“No Spam” is a commitment to sending only relevant, solicited messages. It means avoiding bulk, unwanted emails to respect the recipient's inbox.

No Spam

Pipeline Management

Pipeline management is the process of tracking and managing potential customers as they move through the different stages of your sales process.

Pipeline Management

Trade Shows

Trade shows are events where companies in a specific industry showcase their latest products and services to find new customers and partners.

Trade Shows

Product-Market Fit

Product-market fit is when a product meets the needs of a strong market, leading to high demand, customer satisfaction, and organic growth.

Product-Market Fit

Call Disposition

Call disposition is the process of labeling the outcome of a call. It helps sales teams track interactions and plan their next steps effectively.

Call Disposition

B2B Sales

Learn about B2B sales, including key strategies for B2B success, types of B2B sales models, & B2B vs. B2C sales: understanding the differences.

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Cost Per Click (CPC)

Cost Per Click (CPC) is a digital advertising model where an advertiser pays a fee each time one of their ads gets clicked by a user.

Cost Per Click (CPC)

After-Sales Service

After-sales service is the support provided to customers after they've purchased a product. It includes things like warranties, training, or repairs.

After-Sales Service

Target Account List

A Target Account List (TAL) is a focused list of high-value companies that a business specifically aims to convert into customers.

Target Account List

Email Deliverability Rate

Your email deliverability rate is the percentage of sent emails that successfully land in a recipient's inbox, rather than bouncing or going to spam.

Email Deliverability Rate

Programmatic Advertising

Programmatic advertising uses AI and real-time bidding to automate the buying and selling of digital ad space, targeting specific audiences.

Programmatic Advertising

MEDDICC

MEDDICC is a sales qualification framework for complex B2B deals. It helps reps identify and validate key aspects of an opportunity to close more effectively.

MEDDICC

Artificial Intelligence in Sales

AI in sales uses smart technology to automate repetitive tasks, analyze customer data, and help sales reps close deals more efficiently.

Artificial Intelligence in Sales

Cold Call

Cold calling is a sales technique where reps contact potential customers who have had no prior interaction with their company or product.

Cold Call

Stress Testing

Stress testing is a type of software testing that determines a system's robustness by pushing it beyond its normal operational capacity.

Stress Testing

Business Development Representative

Learn about business development representative, including skills and qualifications for BDRs, & roles and responsibilities of a BDR.

Business Development Representative

Always Be Closing

“Always Be Closing” (ABC) is a sales mantra meaning every action a salesperson takes should be with the ultimate goal of closing the sale.

Always Be Closing

Master Service Agreement

A Master Service Agreement (MSA) is a foundational contract that sets the general terms for an ongoing business relationship between two parties.

Master Service Agreement

Text message marketing

Text message marketing is a strategy where businesses send promotional messages, offers, and updates to customers via SMS or MMS.

Text message marketing

Overcoming Objections

Overcoming objections is the process of addressing and resolving a prospect's concerns or hesitations to move a sale forward.

Overcoming Objections

Personalization in Sales

Personalization in sales means tailoring outreach to a prospect's specific needs, interests, and context to make communication more relevant.

Personalization in Sales

On-premise CRM

An on-premise CRM is a system hosted on a company's own servers, offering complete control over data, security, and system maintenance.

On-premise CRM

Sales Metrics

Sales metrics are quantifiable data points that track and measure a sales team's performance against specific goals and objectives.

Sales Metrics

X-Sell

X-Sell, or cross-selling, is a sales strategy of selling additional, related products or services to an existing customer base.

X-Sell

Lead Generation Funnel

A lead generation funnel is a systematic process that guides potential customers from initial awareness of your brand to becoming qualified leads.

Lead Generation Funnel

Customer Segmentation

Customer segmentation is dividing customers into groups based on shared traits. This allows for more targeted and effective marketing efforts.

Customer Segmentation

Sales Bundle

A sales bundle groups multiple products or services into a single offering, often at a discounted price to provide greater value to customers.

Sales Bundle

SEO

SEO, or Search Engine Optimization, is increasing the quantity and quality of traffic to your website through organic search results.

SEO

Triggers

Triggers are predefined conditions that, when met, automatically launch a workflow or action, ensuring timely and relevant outreach.

Triggers

B2B Sales Process

Learn about B2B sales process, including key components of B2B sales processes, & crafting an effective B2B sales strategy.

B2B Sales Process

Direct-to-Consumer

Direct-to-Consumer (DTC) is a business model where companies sell products directly to customers, bypassing traditional retail middlemen.

Direct-to-Consumer

Sales Intelligence Platform

A sales intelligence platform is software that provides sales teams with data and insights about prospects to help them sell more effectively.

Sales Intelligence Platform

Data Mining

Data mining is the process of discovering patterns, trends, and useful information from large datasets to make better business decisions.

Data Mining

Price Optimization

Price optimization is the process of finding the ideal price for a product or service to maximize profitability or other business objectives.

Price Optimization

Latency

Latency is the delay between a user's action and a system's response. It's the time it takes for a data packet to travel to its destination.

Latency

Solution Selling

Solution selling is a sales approach focused on understanding a customer's pain points to offer a comprehensive solution, not just a product.

Solution Selling

Referral Marketing

Referral marketing is a strategy that incentivizes existing customers to recommend a company's products or services to their personal network.

Referral Marketing

Business Continuity

Learn about business continuity, including understanding key components, steps to ensure continuity, common challenges, & best practices.

Business Continuity

Application Programming Interface Security

API security is the practice of protecting application programming interfaces from attacks, preventing data breaches and unauthorized access.

Application Programming Interface Security

Buyer Intent

Learn about buyer intent, including understanding buyer intent signals, strategies to capture buyer intent, & buyer intent vs. customer interest.

Buyer Intent

Sales Engineer

Sales Engineers blend deep technical knowledge with sales acumen, demonstrating a product's value and solving customer problems to drive revenue.

Sales Engineer

Sales Coaching

Sales coaching is a process where managers help reps improve their skills and performance through personalized feedback, training, and guidance.

Sales Coaching

User-generated Content

User-generated content (UGC) refers to any form of content, like images, videos, or text, created and shared by users on online platforms.

User-generated Content

SDK

A Software Development Kit (SDK) is a set of tools that allows developers to create applications for a specific software package or platform.

SDK

Cybersecurity

Cybersecurity is the practice of protecting computer systems, networks, and data from digital attacks, theft, and unauthorized access.

Cybersecurity

Custom API integration

A custom API integration is a bespoke connection between software, enabling them to communicate and share data to meet unique business requirements.

Custom API integration

Load Balancing

Load balancing is the practice of distributing incoming network traffic across a group of backend servers, ensuring no single server is overworked.

Load Balancing

Lead Nurturing

Lead nurturing is the process of developing and reinforcing relationships with buyers at every stage of the sales funnel.

Lead Nurturing

Lead Velocity Rate

Lead Velocity Rate (LVR) is the growth rate of your qualified leads, measured month-over-month. It's a key indicator of future revenue.

Lead Velocity Rate

Customer Experience

Customer experience (CX) is a customer's total perception of your business, based on every interaction across the entire customer lifecycle.

Customer Experience

Internal signals

Internal signals are data points from your own systems, like website visits or product usage, that indicate a customer's buying intent.

Internal signals

Zero-Based Budgeting (ZBB)

Zero-based budgeting (ZBB) is a method where all expenses are re-evaluated and must be justified from scratch for each new budget period.

Zero-Based Budgeting (ZBB)

Event Tracking

Event tracking is the method of collecting data on specific user actions, or 'events,' on a website or app, such as clicks or downloads.

Event Tracking

Lead Qualification Process

The lead qualification process is how you determine which prospects are most likely to become customers by evaluating them against specific criteria.

Lead Qualification Process

Average Customer Life

Average Customer Life is the average time someone remains a customer. It's a key metric for predicting revenue and measuring customer loyalty.

Average Customer Life

Version Control Systems

A version control system (VCS) tracks changes to files over time, allowing you to recall specific versions and collaborate without conflicts.

Version Control Systems

Sales Plan Template

A sales plan template is a reusable document that outlines your sales strategy, goals, and tactics, providing a clear roadmap for your team.

Sales Plan Template

Email Cadence

An email cadence is a scheduled sequence of emails sent to prospects over a specific period to nurture leads and drive engagement.

Email Cadence

Sales Objections

Sales objections are reasons or concerns raised by a potential customer as to why they are hesitant or unwilling to make a purchase.

Sales Objections

Guided Selling

Guided selling simplifies complex sales by giving reps step-by-step instructions and data-driven recommendations to close deals faster.

Guided Selling

Inside Sales Metrics

Inside sales metrics are quantifiable measures used to track the performance, activities, and effectiveness of an internal sales team.

Inside Sales Metrics

Operational CRM

An Operational CRM is a system that automates and improves customer-facing business processes like sales, marketing, and customer service.

Operational CRM

Reverse Logistics

Reverse logistics is the process for goods moving from the customer back to the seller, covering returns, repairs, recycling, and disposal.

Reverse Logistics

Virtual Selling

Virtual selling is the process of selling to customers remotely using technology like video calls, rather than meeting them in person.

Virtual Selling

Account-Based Marketing Software

Account-Based Marketing (ABM) software helps teams coordinate personalized marketing and sales efforts to land high-value customer accounts.

Account-Based Marketing Software

Business Intelligence

Learn about business intelligence, including key components of business intelligence, the role of BI in decision making, business intelligence tools and techniques.

Business Intelligence

Warm Calling

Warm calling is contacting prospects with a prior connection, like a referral or social media interaction, to make your outreach more relevant.

Warm Calling

Accounts Payable

Accounts Payable (AP) is the money a company owes its suppliers for goods or services bought on credit. It's listed as a current liability.

Accounts Payable

Sales Sequence

A sales sequence is a series of automated touchpoints sent to prospects over time to guide them through the sales funnel.

Sales Sequence

Mobile App Analytics

Mobile app analytics involves collecting and analyzing data from mobile apps to understand user behavior and optimize the app's performance.

Mobile App Analytics

Accessibility Testing

Accessibility testing is a software testing method that verifies an application is usable by people with disabilities, like vision or hearing loss.

Accessibility Testing

Infrastructure as a Service

Infrastructure as a Service (IaaS) is a cloud computing service that offers essential compute, storage, and networking resources on-demand.

Infrastructure as a Service

Sales Stack

A sales stack is the suite of tech tools—from CRMs to prospecting software—that sales reps use to close deals faster and more efficiently.

Sales Stack

Corporate Identity

Corporate identity is the visual and verbal persona of a company, encompassing its logo, color palette, communication style, and core values.

Corporate Identity

Contract Management

Contract management is the process of creating, executing, and analyzing contracts to maximize performance and minimize financial risk.

Contract Management

Prospecting

Prospecting is the process of identifying potential customers, or prospects, to build a sales pipeline and generate new business opportunities.

Prospecting

No Cold Calls

No Cold Calls is a sales strategy that replaces unsolicited calls with warm outreach to prospects who have already demonstrated interest.

No Cold Calls

Multi-Channel Marketing

Multi-channel marketing uses various platforms—like email, social media, and direct mail—to engage with customers wherever they are.

Multi-Channel Marketing

Objection

An objection is an explicit expression by a prospect that presents a barrier to moving forward in the sales process.

Objection

Digital Contracts

Digital contracts are legally binding agreements created, signed, and stored electronically, offering a faster, more secure alternative to paper.

Digital Contracts

Sales Prospecting Techniques

Sales prospecting techniques are methods used by sales teams to identify, contact, and qualify potential customers, also known as prospects.

Sales Prospecting Techniques

Sales and Marketing Analytics

Sales and marketing analytics involves measuring and analyzing performance data to maximize effectiveness and optimize return on investment (ROI).

Sales and Marketing Analytics

Marketing Qualified Lead (MQL)

A Marketing Qualified Lead (MQL) is a prospect who has shown interest based on marketing efforts but isn't yet ready for a sales conversation.

Marketing Qualified Lead (MQL)

Request for Quotation

A Request for Quotation (RFQ) is a document that a company sends to one or more suppliers to get a quote for specific products or services.

Request for Quotation

Mobile Optimization

Mobile optimization adapts your website to ensure visitors on smartphones and tablets have a seamless, user-friendly experience.

Mobile Optimization

Customer Relationship Marketing

Customer relationship marketing is a strategy for building lasting connections with customers to foster long-term loyalty and engagement.

Customer Relationship Marketing

Lead Magnet

A lead magnet is a free incentive offered to potential customers in exchange for their contact details, like an email, to generate sales leads.

Lead Magnet

OAuth

OAuth is an open standard for access delegation. It lets you grant apps access to your data on other services without sharing your password.

OAuth

Competitive Landscape

A competitive landscape is an analysis of your direct and indirect competitors, revealing their strengths, weaknesses, and market positioning.

Competitive Landscape

Omnichannel Marketing

Omnichannel marketing creates a seamless, unified customer experience by integrating a company's various communication and sales channels.

Omnichannel Marketing

Closed Opportunities

Closed opportunities are potential deals that have concluded. They are categorized as either 'closed-won' (a sale was made) or 'closed-lost'.

Closed Opportunities

Draw on Sales Commission

A draw on commission is an advance payment a salesperson receives against future earnings, which is later repaid from earned commissions.

Draw on Sales Commission

Cold Emailing

Cold emailing is sending unsolicited emails to potential customers you haven't contacted before, aiming to start a business conversation.

Cold Emailing

Digital Rights Management

Digital Rights Management (DRM) is technology that controls access to copyrighted digital content, restricting its use, modification, and distribution.

Digital Rights Management

Retargeting Marketing

Retargeting marketing is a digital advertising strategy that targets users who have previously interacted with your website or brand online.

Retargeting Marketing

Small to Medium-Sized Business

A small to medium-sized business (SMB) is a company whose employee count and annual revenue fall below certain industry-specific thresholds.

Small to Medium-Sized Business

Network Monitoring

Network monitoring is the continuous process of tracking a computer network's performance and health to detect and resolve issues proactively.

Network Monitoring

Dynamic Data

Dynamic data is information that updates in real-time. Unlike static data, it reflects the most current state of information automatically.

Dynamic Data

LinkedIn Sales Navigator

LinkedIn Sales Navigator is a premium tool helping sales teams find and engage with the right leads and accounts on the LinkedIn network.

LinkedIn Sales Navigator