Amortization. Big word. Let’s make it...smaller. We’ve got the root word “mort” in there, which means “death." And yeah, when you’re amortizing a loan, you’re...killing it. Softly. You’re gradually reducing your obligation by paying back whatever you borrowed. So that, once a loan is fully amortized, the amount you owe is...zero.
That’s one definition of the term. It’s also a fancy way of saying “allocate costs." You pay a thousand dollars for an amazing bed. Did you get value from it? Well, if you use it a lot, you’ll amortize the costs in such a way that the bed is...cheap. How so? Well, if you sleep on it for 2,000 nights before you toss it, you’ve paid 50 cents per night for your bed. That’s like a nickel an hour of use. And that assumes it’s just you in the bed. Giggity.
What about a prom dress or tux? Well, the finest Walmart prom dress runs about 300 bucks. But you wear it once before Tyler Hendricks vomits on it, and then you’re done. So it cost 300 bucks a night, or about 50 bucks an hour, for the 6 hours you wore it. Way expensive per use, because you only had 6 hours of amortization.
Loans work the same way. You borrow 120 grand to buy a home with a 30-year mortgage. Over those 30 years, you amortize the loan, or allocate the paying-down of that 120k you just borrowed, over a long period of time.
So...something to keep in mind the next time you go shopping for a bed…or a dress.
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Finance: What are Fixed Assets, Tangible...26 Views
finance a la shmoop what are fixed assets and no they're not what people
gratefully have when they leave the proctologist office fixed assets are
fixed as in fixed in place hard items things you can kick in you know whiz on [man tried to pull sword out of stone]
general rules for fixed assets one they're not used up in that accounting
year like inventory isn't a fixed asset and two they're typically in physical
form like a contract or a patent is not a fixed asset and three they're listed [contract and patent docs]
as property plant and equipment on the balance sheet at least usually fixed
assets you have land and you have plants and you have computers the software on
them all fixed assets and these are tangible ones so then what are
intangible fixed assets well basically things that are not
touchable or physically you know they're not feel about those would be things
like well our shmoop logo our shmoop guides intellectual property the stuff [Shmoop website images]
you're watching right now and other copy written material all that kind of stuff
intangible that famous factory smelting plant we're always talking about here [something gets thrown into industrial smelting pot]
from up fixed tangible asset the hundred eighty eight acres of the legal pot
growing farm owned by Mary Jane industries fixed asset the secret recipe [Mary Jane in her pot farm]
owned by coke which names the ingredient beyond sugar in the fizzy water that
makes coke oh so great intangible fixed asset anyway these big fat fixed assets
carry heft and illiquidity like you can't just quickly sell a hundred eighty
eight acres of a pot farm in well get a whole lot of money for it same deal with [Mary Jane unhappy with her attempt to sell the farm]
the smelting factory or eight miles of styrofoam packing peanuts [shower of packing peanuts]
even if they do as our proctologist says give you you know more cushion for the
pushin don't eat those things [doctor gives man a shot]
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