Small Business Accounting: How to Calculate an Amortization Schedule

An amortization schedule concerns the manner in which the costs of certain acquired assets are accounted for in financial statements. The balance sheet of a company shows assets at their book values. While tangible assets are depreciated according to a depreciation schedule, intangible assets are amortized according to an amortization schedule. In this respect, depreciation and amortization represent identical processes for different classes of assets. Intangible assets are long-term assets that lack physical substance (franchise agreements, trademarks, patents and copyrights, for example).

Ways Intangible Assets Are Written Down

The amortization schedule of an intangible asset shows how the asset is written down over the years as it loses economic value. Most firms use the straight-line method, which allocates an equal amortization expense to the asset each year until the worth of the asset is zero (or its salvage value). Another approach is the accelerated (or double-declining balance) method, which recognizes more write-down expenses in the early years of the asset and fewer in the later years. Whether the straight-line or accelerated method is used, the total amortization expense over the life of the asset will be the same. Intangible assets that are created internally, including research and development costs, however, are expensed as incurred rather than amortized.

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