What is accumulated amortization?
accumulated amortization is a number that represents the use of an intangible asset. Intangible assets have a specific lifetime and include items such as patents, copyright, contractual rights, except similar items that are not felt or seen. Companies do not occupy these items immediately after purchase. Accounting publishes every month the cost of amortization to represent the use of an intangible asset. Accumulated amortization is a contrast of asset that reduces the total amount of assets in the balance sheet. Assets increase the value of society. By recording an item as an asset, the company increases its net income for periods and also increases its assets in the balance sheet. Since the company uses an item, it records amortization and accumulated amortization represents monthly and annual use of an intangible asset. Companies can group intangible assets by Type, such as patents and copyright.
Accountants determine amortization by dividing the total cost of acquisitionsIntangible asset about its years of life. Most of the years of useful life are dictated by the laws of the country; In most cases, years of service can be more than 20 or 30 years. The basic division allows companies to report a direct amount for amortization purposes. For example, a $ 50,000 patent in the US (USD) with a lifetime of 20 years has an annual amortization cost of $ 2,500.
The basic item of the diary is necessary to record amortization and accumulated amortization. Accounting debit amortization costs and accumulated amortization of loans. Debit reduces the profit of the current period, as shown in the profit and loss statement. Credit goes to the accumulated account Amortization Contra Asset in the balance sheet. However, the ASSET CONTRA account has a negative gross so far consists in the Asset section of the balance sheet.
The Business Party Party can determine the value of an intangible asset by joining Asset and Contra Asset. Using the previous plunderDu has a patent worth $ 50,000 in its balance sheet. After six years, accountants will record $ 15,000 in accumulated amortization, credit balance. The common network of these amounts represents a patent value of $ 35,000. Inteed parties can do this for every intangible asset in the balance sheet of society.
amortization is very similar to depreciation. However, depreciation is valid for physical assets such as plants and equipment. Recording depreciation works in the same way as amortization, although physical assets may have different lifetime and computations of depreciation.