From the course: Accounting Foundations: Asset Impairment
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Difference between depreciation and amortization
From the course: Accounting Foundations: Asset Impairment
Difference between depreciation and amortization
- All long-term operating assets, except for land, wear out over time. Tangible assets, such as buildings and machines, wear out. The annual expense associated with this wearing out process is called depreciation. Intangible assets, such as patents, wear out as the rights to these assets expire or their economic relevance fades. The annual expense associated with this intangible asset gradual expiration process is called amortization. Natural resource assets, such as ore in a mine or timber in a forest, also wear out as they are extracted or harvested. The annual expense associated with the consumption of natural resources is called depletion. Depreciation, amortization, depletion. Each of these words is a description of the expense associated with the gradual consumption of the usefulness of a long-term operating asset. For amortization purposes, estimating the useful life of intangible assets can be quite difficult.…
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