Depreciation and amortization is essentially spreading out the cost of a larger priced item over the course of its life. This helps to even out the profitability of a company, and allow for equal amounts to be deducted on the P&L.

The only difference between depreciation and amortization is that depreciation is for tangible assets, and amortization is for intangible assets.

Companies get some tax benefits when they use depreciation and amortization, and it’s also important to know to make sure your numbers are accurate each year.

To sum it up — companies when they invest in capital assets, they're allowed to spread that cost or capitalize those expenses over time. Helping to tie the cost of that asset evenly to the benefit derived over the years. And there are some tax advantages and some benefits of doing so and it also helps to bring a smoother sort of real picture on profitability and how that asset is contributing to both driving revenue and creating profitability.


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