Intangible Asset

Breakdown of the Intangible Asset Accounting Flow along with the journal entry you would typically use:

🔹 Step 1: Acquisition
What It Means:
To begin with, your business acquires a non-physical asset such as:

• Software license
• Trademark
• Patent
• Customer list
• Franchise rights
• Copyright

Example:
For instance, you purchase a software license for $60,000 with a useful life of 5 years.

🔹 Step 2: Recording in Journal Entry
After that, you need to record the acquisition appropriately in your accounting system.

Initial Journal Entry (at Acquisition):

📌 As a result, this entry capitalizes the intangible asset, increasing your total assets on the balance sheet.

🔹 Step 3: Amortization
Subsequently, over time, you must allocate the cost of the intangible asset using amortization.
Amortization is similar to depreciation, but it applies specifically to intangible assets.

Calculation:
Annual Amortization = $60,000 ÷ 5 years = $12,000/year

Journal Entry (each year):

📌 Consequently, this entry helps spread the cost as an expense while preserving the asset’s historical value on the balance sheet.

🔁 Summary Flow

1. First of all: Acquire the intangible asset.
2. In the next step, record the purchase by capitalizing it on the balance sheet.
3. In conclusion, apply amortization to systematically expense the asset over its useful life.

Resource: Intangible Asset – FASB

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