Amortization is a method of allocating the cost of an intangible asset over its useful life. Similar to depreciation, the purpose of amortization is to provide a more accurate representation of a company's financial performance and financial position by spreading the cost of an intangible asset over its useful life rather than recognizing it in a single period.

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Intangible assets are non-physical assets such as patents, copyrights, trademarks, and software. Unlike tangible assets, intangible assets do not have a physical form and therefore do not depreciate like a piece of equipment. Instead, the cost of intangible assets is amortized over their useful life.

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For example, if a company acquires a patent for $100,000 with an estimated useful life of 10 years, the annual amortization expense would be $10,000. The annual amortization expense is recognized as an expense on the income statement, which reduces the company's net income and increases its total expenses. Amortization is an important concept in accounting, particularly for companies that invest in intangible assets, as it helps to provide a more accurate representation of their financial performance and financial position.

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