Amortization
Definition
Amortization is the non-cash expensing of a definite-lived intangible asset's cost over its useful life — the intangible-asset analog of depreciation. Common examples include customer relationships, developed technology, and patents, especially those written up in acquisitions.
Under US GAAP, goodwill and indefinite-lived intangibles are not amortized; they are tested for impairment instead (at least annually or when a triggering event occurs). Definite-lived intangibles are amortized, typically straight-line.
The word also describes paying down loan principal over time (an "amortizing" loan) — a completely different concept that appears in LBO and debt contexts.
Why interviewers ask
Interviewers test whether you know goodwill is not amortized under current US GAAP (a frequent trip-up, since it was amortized pre-2001 and private companies have an election to amortize). In M&A models, amortization of written-up intangibles is a key pro forma expense; candidates also get caught confusing intangible amortization with debt amortization.
Related terms
Interviews don't test definitions — they test recall under pressure.
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