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Amortization

Definitions and Meaning in English

1. The process of gradually reducing a debt or loan balance through regular payments over time.
2. The systematic allocation of the cost of an intangible asset over its useful life in accounting.
3. A financial mechanism to spread out payments or expenses in manageable portions over a specific period.

History and Origin

The term “amortization” originates from the Latin word amortizare, meaning “to kill” or “to extinguish.” It was adopted into Middle English via Old French and became associated with gradually “extinguishing” a debt or liability. Historically, amortization evolved as a financial and accounting concept to manage loans and asset depreciation effectively.

Detailed Explanation

Amortization refers to the structured repayment of a loan or the gradual writing off of intangible assets. In finance, it means breaking down the repayment of a loan into equal installments over a fixed term, including both principal and interest. In accounting, amortization applies to non-physical assets like patents or copyrights, where their cost is expensed systematically over their useful life. This helps businesses manage expenses and understand financial positions more clearly.

Example Sentences

1. The monthly mortgage payments include amortization of the loan principal and interest.
2. The company used amortization to spread the cost of its new patent over ten years.
3. His car loan was structured for easy amortization over five years.
4. Proper amortization ensures the debt is paid off by the end of the term.
5. The accountant calculated the amortization schedule for the intangible assets.
6. By following the amortization plan, they will own the house outright in 20 years.
7. The financial report detailed the amortization of goodwill acquired during the merger.
8. The software generates an amortization schedule to show payment breakdowns.
9. Businesses benefit from amortization to allocate expenses systematically over time.

Synonyms with Short Explanation

1. Repayment – The act of paying back borrowed money, similar to amortization.
2. Depreciation – The reduction in value of tangible assets over time, related in accounting.
3. Payoff – The full settlement of a loan or debt, often the end goal of amortization.
4. Installment – A single payment in a series used for amortization of a loan.
5. Write-off – The accounting process of reducing an asset’s value, akin to amortization for intangible assets.

Related Words with Short Explanation

1. Principal – The original amount of the loan that is amortized over time.
2. Interest – The cost of borrowing money, included in amortization payments.
3. Schedule – A plan showing payment timelines, essential for amortization.
4. Liability – A financial obligation reduced through amortization.
5. Asset – A resource whose value may be amortized in accounting.

More Matches with Short Explanation

1. Loan – A financial arrangement often subject to amortization.
2. Mortgage – A specific type of loan typically amortized over years.
3. Depreciable – Refers to assets that lose value over time, related to amortization.
4. Equity – The ownership value in an asset, which increases as amortization progresses.
5. Obligation – A debt or responsibility managed through amortization.

Antonyms

1. Accumulation – The gathering or increasing of debt or value, opposite of amortization.
2. Inflation – A rise in prices that can reduce the real value of amortized amounts.
3. Indebtedness – The state of owing money, contrary to the purpose of amortization.
4. Balloon Payment – A large payment at the end of a loan term, contrasting with gradual amortization.
5. Lump Sum – A single payment instead of spreading it out, the opposite of amortization.