Definition
The accounting term used to describe the expiration of intangible assets such as patents or goodwill is amortization. As is the case with the depreciation of a tangible asset, the amortization of an intangible asset is shown on the income statement as an expense of the company; thereby reducing net income over the years this benefit is realized.
The term amortization is also associated with the elimination of a liability, typically a mortgage, over time.
Explanation
One of the problems with calculating the amortization schedule for an intangible asset is determining their useful lives. To help solve this problem, an intangible asset cannot be amortized over a time period that exceeds 40 years. Amortization of intangible assets generally occurs on a straight-line basis.
Related Terms
The income statement is a financial accounting report that demonstrates how net income, or profit, is derived from revenues. The main categories appearing on an income statement include revenues, cost of goods sold, operating expenses, non-recurring items and net income.
Moneyzine EditorJanuary 22nd, 2024
The term expense is used to describe the outflow of money to pay for a product or service. In financial accounting, expenses are defined as the cost of goods sold, or services used up, in the process of producing revenues for a company. The expenses of a company are reported on the income statement.Moneyzine EditorNovember 29th, 2022
The financial accounting term depreciation is sometimes defined as a decline in tangible plant's service potential. Depreciation is a method of allocating the cost of a tangible asset in a systematic manner to those time periods that benefit from the use of the asset.Moneyzine EditorJanuary 16th, 2024
The financial accounting term intangible asset is used to describe those assets that lack physical structure (they cannot be seen or measured), and have a high degree of uncertainty surrounding future benefits to be derived from them. The most common types of intangible assets appearing on the balance sheet are goodwill, copyrights, trademarks, patents, franchises, and organization costs.Moneyzine EditorJanuary 22nd, 2024
The financial accounting term depletion refers to the allocation of cost to an accounting period as units of a natural resource are mined, cut, pumped or otherwise harvested or consumed.Moneyzine EditorSeptember 19th, 2023
