Depreciation and Amortization Definition and Explanation

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Quick Definition

Considered an expense, a cost that is spread out among company reporting periods from the purchase of a large asset.

Explanation of Depreciation and Amortization

Depreciation and amortization is a combined expense, typically reported on the income statement. A company can record this if they purchase large assets that are expected to last many years. Amortization is also added to depreciation, as loan payments are also periodic.

Importance of Depreciation and Amortization

In terms of financial analysis, Depreciation and Amortization is considered an expense. Depending on the asset and what accounting rules the company may be operating under, an asset can be depreciated over multiple reporting periods.

Amortization of a loan also happens over many reporting periods and is the reason they are often included with depreciation. Careful investors may want to identify the amounts of each, as these values are often explained in further detail in the accompanying notes to the financial statements.