WHAT IS THE DIFFERENCE BETWEEN THE TERM AMORTIZE AND DEPRECIATE

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