Amortization of Intangibles
Definition: Systematic cost allocation
Scope:ModerateDifficulty:Moderate
Systematic cost allocation
Common Journal Entries
| Account | Debit | Credit |
|---|---|---|
| 1. Amortize patent | ||
| Patent cost $50,000 / 20 yr = $2,500. | ||
| Amortization ExpenseExpense+ | $2,500 | |
| PatentsAsset− | $2,500 | |
| Finite-life intangibles are amortized. | ||
| 2. Amortize franchise license | ||
| Franchise $60,000 / 15 yr = $4,000. | ||
| Amortization ExpenseExpense+ | $4,000 | |
| Franchise RightsAsset− | $4,000 | |
| Each finite-life intangible amortized separately. | ||
T-AccountsA visual representation of a ledger account shaped like the letter T. Left side shows debits, right side shows credits.
Amortization ExpenseAmortization ExpenseExpenseA cost incurred in the process of earning revenue. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$2,500.00
$4,000.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$6,500.00
PatentsPatentsAssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$2,500.00
$2,500.00
Franchise RightsFranchise RightsAssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$4,000.00
$4,000.00
DurationN/A
External Links
- Amortization (accounting) — Wikipedia