Unit 7 Reading Activity

Listen to the audio recording while you read the text. When you understand everything, please continue to the next activity.

Depreciation and Amortization

If you ask any newly qualified accountant what they find hardest, they will almost certainly answer depreciation and amortization. But why do people find these two concepts so hard to master?

Well, for one thing depending on where you are located the terms may mean the same thing, or may have decidedly different meanings.

Both depreciation and amortization are key aspects of accrual accounting and need to be mastered by anyone wanting to make a career in accountancy. The aim of both depreciation and amortization are to allocate the cost of an asset over the life of the asset. To do this they need to carry over an expense account containing each year’s depreciation figure.

As depreciation deals with tangible assets and amortization deals with intangible assets, we usually find that depreciation is more commonly understood because we can visualize the process easier. However, the various methods of depreciation can confuse the matter greatly.