Both amortization and depreciation are ways to spread out the cost of something over time — but they apply to different kinds of things.
✅ Amortization is for intangible assets.
Think of things you can’t touch — like a trademark, patent, or software license. These don’t wear out like physical items, but they do lose value over time. Amortization helps you account for that loss.
✅ Depreciation is for tangible assets.
These are physical things like equipment, vehicles, or buildings. They wear down or become outdated with use. Depreciation spreads their cost across the years you use them.
Main Differences at a Glance:
| Amortization | Depreciation |
|---|---|
| For intangible things | For physical things |
| No resale or salvage value used | Often includes a resale value |
| Usually uses a straight-line method | Can use different methods (like accelerated depreciation) |
| Tracks the value of things like patents or copyrights | Tracks the value of things like trucks or office equipment |
💡 Why It Matters:
Both help businesses avoid counting the full cost of something in one year. Instead, they spread out the cost, making financial reports more accurate and fair.