A more thorough explanation:

Amortization is a term used in finance and accounting that has different meanings depending on the context. Generally, it refers to the process of spreading out payments or expenses over a period of time.

When it comes to loans, amortization refers to the process of dividing the payments for the loan principal and interest into periodic payments. This means that the borrower pays a fixed amount each month, which includes both the interest and a portion of the principal. Over time, the amount of interest paid decreases, while the amount of principal paid increases, until the loan is fully paid off.

For example, let's say you take out a $10,000 car loan with a 5% interest rate and a 5-year term. Using an amortization schedule, your monthly payment would be $188.71. In the first month, $41.67 would go towards interest, while the remaining $147.04 would go towards the principal. Over time, the amount of interest paid would decrease, while the amount of principal paid would increase, until the loan is fully paid off after 5 years.

For tax and accounting purposes, amortization refers to the process of gradually writing off the cost of an asset over its useful life. This is done to match the expenses of the asset with the revenue it generates. For example, if a business purchases a $10,000 piece of equipment that is expected to last 5 years, they might choose to amortize the cost of the equipment over that 5-year period. This means that each year, they would deduct $2,000 from their taxable income, which would reduce their tax obligations.

Overall, amortization is a useful tool for managing expenses and payments over time, whether you're dealing with loans or taxes.