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In accounting, amortization is the process that reduces the value of an intangible asset. Not all businesses have to deal with this. However, for those that do, amortization is an important procedure that must be carried out correctly to ensure financial statements are faithful representations of the business' financial situation.

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1. Based on the Matching Principle

Amortization shares a direct link with the matching principle. The rule states businesses must record expenses in the same period as the revenue they helped to earn. In other words, it is the business' responsibility to record relevant expenses within the same tax period as they used the amortized intangible assets for the sake of revenue-earning operations.

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