Quote from Jenniferrichard on January 4, 2026, 9:39 pm

In the world of Accounting Services in Jersey City, depreciation and amortization are the two primary methods used to spread the cost of an expensive asset over its "useful life." Instead of recording a massive one-time expense the day you buy something, these techniques allow a business to recognize the cost gradually, matching it against the revenue the asset helps generate.

While they serve the same purpose, the difference lies entirely in the type of asset being written off.

1. Depreciation: For Things You Can Touch

Depreciation applies to tangible assets. These are physical items that wear out, break down, or become technologically obsolete over time.

Common Examples: Vehicles, machinery, office furniture, computers, and buildings.

Key Concept: Because a delivery van physically wears out after 100,000 miles, its value "depreciates."

Salvage Value: Unlike intangible assets, physical items often have "salvage value"—the amount you can sell the item for as scrap or parts once you're done with it.

Common Depreciation Methods

Straight-Line: The simplest method. You take the cost, subtract the salvage value, and divide it by the number of years you'll use it.

Double-Declining Balance: An "accelerated" method where you write off more of the value in the first few years (common for cars or tech that lose value fast).

Units of Production: Depreciation based on how much the machine actually worked (e.g., how many pages a printer produced).

2. Amortization: For Things You Can’t Touch

Amortization applies to intangible assets. These are non-physical assets that provide value through legal rights or intellectual property.

Common Examples: Patents, copyrights, trademarks, franchises, and software licenses.

Key Concept: A patent doesn't "wear out" like a tractor does, but it does have a legal expiration date. Amortization reflects the consumption of that legal right over time.

Salvage Value: Intangible assets almost always have zero salvage value. Once a patent expires, it typically has no resale value.

How Amortization is Calculated

Most companies use the Straight-Line Method for amortization. If you buy a patent for $50,000 that lasts 10 years, you simply record a $5,000 expense every year until it hits zero.

Why Do Businesses Use Them?

Beyond just keeping the books tidy, these methods are vital for two reasons:

The Matching Principle: Accounting rules (GAAP) require that you match expenses with the revenue they produce. If a $100,000 machine helps you make money for 10 years, it’s more accurate to record $10,000 of cost each year than $100,000 in year one.

Tax Benefits: Both are non-cash expenses. This means they reduce your "taxable income" (saving you money on taxes) without actually Accounting Services Jersey City to spend any new cash in that year.