What is Amortization?

To amortize means to pay off a debt by putting aside money regularly for a period of time. . We read sometimes, as “Capital cost is amortizable over a period of 10 years”. In other words, amortization is a schedule of payments in context with a debt such as personal loan or home loan and fixed over a period. The amortization schedule is the table, which gives details of the periodic principal and interest payments on a loan and the amount outstanding at any point of time. It also shows the gradual decrease of the loan balance until it reaches zero.
You can easily understand amortization by opening MS Excel > File > New> recently used templates > Loan Amortization. Following is the screen shot taken from MS Excel.

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