Matching Principle

• Amortization is performed because of an important accounting rule called the Matching Principle. Said rule states that revenues should be recorded in the same time periods as the expenses that were spent to produce them, much as expenses should be recorded in the same time periods as the revenues that were produced through their occurrence. Since amortizable assets produce benefits across multiple time periods, their expensing needs to be done across those same multiple time periods.
  
  

Amortization

• Amortization is performed thus: In each time period in which the amortizable asset remains useful, a portion of its remaining amortizable value is calculated to be lost through the asset’s usage and recorded as amortization expense. This process continues in each successive period until the amortizable asset’s usefulness is at an end and its amortizable value is exhausted.
  
  

Amortization Expense

• Amortization expense is recorded in much the same manner as other expenses. In sum, the business records the occurrence of the amortization expense and a corresponding deduction to either the amortizable asset’s account or a corresponding increase to that asset’s accumulated amortization. Whether an amortizable asset has an accumulated amortization account depends on whether the accountant decides to practice amortization using that method and create such an account for the asset.
  
  

Accumulated Amortization

• Accumulated amortization is a contra-asset account that represents a specific amortizable asset’s total value that has been lost due to amortization. Contra-assets are assets possessing negative rather than positive balances and tend to be used to represent a deduction that needs to be made from a base account. In this case, accumulated amortization is tied to the amortizable asset’s account and is deducted from it in order to calculate that same account’s remaining value.