Monthly amortization refers to the act of allocating and accounting according to the amount that should be borne by an enterprise in the calculation of costs or expenses in accordance with the requirements of accrual accounting. For example, if a business pays one year's rent at a time, that year's rent should be amortized over the period and not in full in the month in which it was paid. Amortization is usually used for long-term use of operating assets, such as land use rights, large software, start-up expenses and other intangible assets. These assets can contribute to the company's business and revenue over a longer period of time, so their acquisition costs need to be spread over each year. The amortization period is generally not more than 10 years, and the straight-line method and acceleration method can be used to amortize intangible assets. Amortization expense was included in administrative expenses to reduce current profit, but had no impact on operating cash flow. In addition, monthly amortization is also commonly used for the amortization of other long-term assets, such as long-term amortized expenses. These expenses can be beneficial for the business for more than a year, or even longer. Therefore, the occurrence of these expenses will not be fully included in the current period, but need to be amortized according to a certain period.
When making monthly amortization, companies need to follow the accrual principle, which means that the recognition of income and expenses should be separated from the time when they are actually received or paid. This means that even if a business actually pays expenses for the whole year, it needs to be amortized on a pro-rata basis across each month to more accurately reflect the revenue and expenses for each accounting period.
With monthly amortization, businesses can more accurately calculate profits and costs for each accounting period, thereby better assessing the operating and financial health of the business. At the same time, it is also a requirement for companies to follow accounting standards and maintain financial transparency.
Monthly amortization calculation formula:
Monthly amortization = (p n) (1 - 1 + r) -n).
where p represents the original value of the asset, r represents the monthly interest rate, and n represents the total number of months.
This formula can help you calculate the monthly amortization amount, which is the amount that needs to be amortized each month. Note that this formula assumes that you already know the original value of the asset, the monthly interest rate, and the total number of months.
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