Mortgage Loan Qualifying

Depreciation and amortization are accounting techniques used for a range of purposes. Although the way these two techniques are calculated is similar, their core purposes are quite different. Both depreciation and amortization can be calculated using a variety of methods, each of which features unique accounting benefits suited for specific situations.

Depreciation Schedules

Depreciation is a method of recognizing large expenses in small parts in an accounting system. The concept of depreciation deals with the fact that assets lose their value over time, eventually ending up at a salvage value—the value at which the asset can be sold at the end of its useful life. Depreciation as an accounting tool recognizes a large expense in portions equal to the amount that the asset has gone down in value for the period.

Amortization schedules calculate the principal and interest payments on bonds and loans using either a fixed or variable interest rate. Amortization schedules recognize a different ratio of interest and principal payments for each period, with portions increasing for principal payments over time, even though the actual periodic payment may be the same.

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