Amortization

The installmental re-payment of a loan by a debtor over the life span of the loan. This is usually by creating a sinking fund account into which the debtor would make periodic payment which would then be utilized to redeem the loan. Amortization in accounting parlance, however, refers to the gradual reduction of the book value of an intangible asset until completely written-off. Akin to depreciation except that depreciation is used in respect of tangible assets.