Amortization expense is a non-cash expense on the income statement that reduces the book value of an intangible asset over its useful life. This loss in value is calculated by taking the difference between the cost of the intangible asset and its estimated residual value, then dividing it by the useful life of the asset. By expensing this amount each period, the amortization expense on the income statement acts as a form of depreciation for intangible assets, which cannot be physically depreciated. Although this expense does not represent cash movement, it does reduce net income and tax liability for the reporting period — making it a crucial consideration for businesses with intangible assets.