The gradual elimination of a liability (including principal and interest) over time. Generally this is done by regular payments over a specified period of time. A good example is a mortgage. Amortization can also be used to refer to an asset, which is expensed over the life of the item or the time period in which it is used. A company thus used amortization to expense assets and liabilities over the time period in which they are used, rather than as a one-time hit to the balance sheet.
Amortization is similar to depreciation in that the value of the asset or liability is reduced over time. The key difference is the items which they refer to - generally depreciation refers to a tangible asset, like machinery or buildings, while amortization refers to intangible assets like copyrights, patents, or goodwill.
Amortization appears on a company's balance sheet in EBITDA - Earnings before Taxes, Interest, Depreciation and Amortization.
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