Amortization is best described as which of the following?

• A. Gradual retirement of debt by uneven payments
• B. Gradual retirement of debt by even, periodic payments
• C. Systematic depreciation of fixed assets
• D. Expensing of annual operating costs

Answer: (B)

Amortization is the process of retiring debt through regular, level payments over the life of the loan. Each payment includes interest on the outstanding balance and a principal portion that reduces the loan. As payments continue, the balance declines, and the portion of each payment applied to principal grows while the interest portion shrinks. This creates a predictable schedule where the debt is gradually paid off with even, periodic payments. The other options mix in concepts from depreciation or operating costs, which are not about systematically paying down debt: uneven payments wouldn’t form a standard amortization pattern, depreciation relates to asset cost allocation (often for intangible assets in other contexts), and expensing operating costs is recognizing costs in the period rather than spreading debt repayment over time.