Definition
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.
Explanation
The value of purchased intangible assets is recorded on the balance sheet at their original cost. In the same way depreciation is used for assets, amortization is used to account for the expiration in an intangible asset's value, which is difficult to determine because:
They are often only valuable to a given company
The exact useful life is difficult to determine
The benefit might be based on competitive advantage, and this can lead to large swings in value
Generally, intangible assets fall into two categories:
Legal: includes brand names, copyrights, trademarks, patents, and trade secrets
Competitive: includes process and business methods
Related Terms
Also known as a statement of financial position, the balance sheet is used to show the financial health of a company at a particular point in time. The balance sheet consists of assets, liabilities, and owner's equity in the company. It is one of the four key financial statements issued by public companies.
Moneyzine EditorNovember 6th, 2024
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 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.Moneyzine EditorNovember 6th, 2024
The accounting term used to describe an economic resource, which is owned by the corporation and expected to provide future benefits to its operation, is asset. Appearing on the balance sheet, assets are typically broken down into two categories:Moneyzine EditorNovember 6th, 2024.png)
The accounting subcategory of intangible assets contains several types of assets, including copyrights and patents. A copyright is a legally-protected and exclusive right to the sale and production of literary or artistic materials. Patents are a legally-protected and exclusive right to the use, production, and sale of a product.Moneyzine EditorJanuary 12th, 2024- The accounting subcategory of intangible assets contains several types of assets, including trademarks and franchises. A franchise is a legally or company-protected and exclusive right to conduct a specific type of business in a pre-defined geography. A trademark can be a design, symbol or a word that identifies a product or group of products.Moneyzine EditorNovember 6th, 2024
The financial accounting term goodwill refers to the present value of earnings that are in excess of normal profitability for a particular industry. Goodwill is commonly recorded when a business is acquired and the price paid is in excess of the book value of the company.Moneyzine EditorNovember 6th, 2024- The term valuation of intangible assets refers to the process of computing and recording their cost on the company's balance sheet. The capitalized costs of an intangible asset can include the purchase price as well as all costs required to ready the asset for its intended use.Moneyzine EditorNovember 6th, 2024
The financial accounting term badwill refers to a condition that arises when the price paid for identifiable assets is lower than their net fair market value. Badwill is more likely to occur when the purchaser acquires a bundle of assets, as is the case when one business acquires another.Moneyzine EditorNovember 6th, 2024
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