What is Accumulated Amortization?
Definition: Accumulated amortization is the cumulative amortization of a loan or intangible asset up to a single point in its life. Accumulated amortization is a contra asset account, meaning its natural balance is a credit that reduces the overall asset value.
In Plain English: Accumulated amortization is the total amount a loan or intangible asset has depreciated up to a point in time.
Example: Your shoe company created a patent three months ago and it has amortized $3k each month. Your accumulated amortization is $3k+$3k+$3k=$9k
Why Should You Care?
It’s important to understand the accumulated amortization of your loans and intangible assets in order to determine its carrying value, which is the difference between its historical/original cost and accumulated amortization.