What does amortization specifically relate to?

Amortization specifically refers to the allocation of the cost of intangible assets over their useful lives. This process allows a company to gradually expense the value of an intangible asset, such as patents, trademarks, or copyrights, rather than recognizing the total cost at once. By doing this, businesses can match the expense of the asset to the revenues it generates each period, providing a clearer picture of their financial performance over time.

This approach reflects the consumption or diminishing value of intangible assets, aligning with accounting principles that aim for consistency and transparency in financial reporting. It is distinct from depreciation, which applies to tangible assets, highlighting the particular applicability of amortization to intangible assets specifically.