Double entries for intangible assets

Double Entries for Intangible Assets

Capitalising Intangible Assets

Capitalising an intangible asset means that the asset is recognized on the statement of financial position (SFP) and can be used to represent value within the business's financial statements. This process is vital because it allows for a more accurate reflection of the company's asset base, ensuring that the intangible assets like patents, trademarks, or copyrights are accounted for properly.

Double Entry for Purchase of an Intangible Asset

To record the purchase of an intangible asset, the accounting treatment follows the double-entry bookkeeping system. This means for every entry made, an equally opposite entry must be recorded. The double entry to record the purchase is as follows:

Amortisation of Intangible Assets

Amortisation is the systematic allocation of the depreciable amount of an intangible asset over its useful life. It is important for accurately representing the consumption of the asset's value over time, as these assets typically do not have a physical substance but still provide economic benefits.

Double Entry for Amortisation

The double entry to record the amortisation of an intangible asset reflects the expense related to its usage over time. The accounting treatment for recording amortisation is mentioned below:

Importance of Accounting for Intangible Assets

Failing to properly account for intangible assets can lead to significant understatements of a company's financial position. Proper capitalisation and amortisation of these assets provide stakeholders with essential information regarding the company's resource utilization and ongoing investments in future growth.