WHAT IS THE DIFFERENCE BETWEEN THE TERM AMORTIZE AND DEPRECIATE

November 7th, 2009 Comments off
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Question:

Sometimes, we are confused by the term amortize and depreciate. Some even say that they are the same as both terms are used in depreciation accounting.

Answer:

Similarities of amortization and depreciation:

  • Both amortization and depreciation are alike in the sense that the non-current assets are been expensed/write off systematically to the Income Statement following the matching concept.
  • The accounting entries for both amortization and depreciation are the same:

Debit: Income Statement(Amortization or Depreciation Account)

Credit: Non-current assets ( Goodwill, leases, Plant & Machinery,office equipments)

Difference:

However, amortization is related to the write off of INTANGIBLE assets like goodwill and leases

whereas:

Depreciation is toward the process of writing off TANGIBLE assets like plant and machinery, motor vehicles, furniture & fittings, office equipments

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Financial Accounting

 
 

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