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Amortization is similar to depreciation, but it applies to intangible assets such as trademarks, patents, copyrights, and intellectual property. It refers to the process of spreading the cost of an intangible asset over its useful life, similar to how depreciation does for tangible assets.

The amortization expense is recorded on the income statement and reduces the value of the intangible asset on the balance sheet. For example, if a company pays $100,000 for a patent that will last for 20 years, the company would record an amortization expense of $5,000 per year ($100,000 / 20 years) until the patent expires. Amortization helps companies manage their cash flow and spread the cost of intangible assets over time, rather than all at once.

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