Creating provision for depreciation and amortization of various assets within an organization is a highly advisable accounting practice. It implies valuation and gradual devaluation of an asset or liability periodically by a definite amount like an installment. While asset is thus reduced in value so as to expense the item in question over its expected utility life, amortization of liability involves apportioning categories of assets and liabilities to their applicable time span.

Though one and the same thing, Depreciation and Amortization differ in terms of applicability to the kind of assets and liabilities. While tangible assets like buildings, machinery, equipments etc are depreciated, intangible assets like copyrights, patents, goodwill, capitalized costs etc. are all amortized. On similar lines, liabilities such as premium income, subscriptions etc. are amortized because such liabilities involve inflow of revenue or income over a period of time.

Amortization is a useful concept that allows accountants to apply the period concept in accrual-based financial statements. Be it income or expense, each is recorded in the periods affected rather than in the first particular financial year.

The amortization period for an intangible asset is subject to its useful life, which may well span over forty years or more. For example, cost of patenting is amortized for 17 plus years generally speaking. Then there are some assets that do not loose value with time like land, but gain value over time in spite of repetitive use. Likewise, intangible assets like trademarks do not loose value with the passage of time and instead increase in value. Therefore, these types of tangible and intangible assets do not fall in the applicability purview of either depreciation or amortization.