How to Report Intangible Assets on a Balance Sheet
Intangible assets are those items that individuals in a company cannot feel or see. In accounting terms, these include items that provide rights or privileges to a company. Examples include patents, copyrights or right-to-use contracts. Though a piece of paper exists for the item, it does not truly represent the asset itself, in terms of value brought by the item. Reporting intangible assets is necessary on a company's balance sheet, under the long-term assets section.
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Instructions
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Compute the cost of the intangible asset. This includes the acquisition cost and any associated fees to secure the rights and privileges of the item.
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Post the total cost into the general ledger. Debit an asset account and credit payables or cash, depending on how the company paid for the asset.
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Create a line on the balance sheet for the asset. Provide a one-line description of the intangible asset, such as "patent" or "copyright."
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Calculate annual amortization for the intangible asset. Divide the asset's total cost by the number of useful years the asset will bring value to the company.
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Post the annual depreciation into the general ledger. Debit amortization expense and credit accumulated amortization.
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Report accumulated amortization directly below the intangible asset account on the balance sheet. This is a contra account that reduces the historical value of the intangible asset, creating a carrying value for the item.
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Tips & Warnings
Intangible assets can go into one account together, grouped by type. For example, one account is necessary for all patents, with each patent having its own depreciation calculation.
