Consulting Case Interview Practice Questions

Answer -D - The loan payment is an amortization. Amortization is the elimination of a liability through gradual payments.

Key Takeaway: Amortization is a gradual reduction of an amount over a period of time. A loan is a liability and the loan payment reduces the liability. Amortization also occurs with assets that have a limited life. The gradual reduction that occurs in that instance is depreciation, where the debit amortization expense is debited and the asset itself is credited.