Guides

Purchase intangible assets

Intangible assets are non-physical property owned by a business. The acquisition cost of an intangible asset is recovered over its economic life through amortization, rather than as an expense during a single accounting period. To be considered an intangible asset, property should generally:

  • Be expected to enhance cash flow for longer than one major accounting period (usually one year)
  • Cost more than the capitalization threshold (set either by company policy or local law)

Intangible assets can be related to marketing, intellectual property, contracts, or technology and can include, among other things:

  • Patents
  • Trade or internet domain names
  • Licenses
  • Customer lists
  • Copyrights
  • Franchises
  • Trade secrets
  • Good will

Often, intangible assets are acquired when an ongoing business is purchased. Part of the purchase price is allocated to intangible assets. In other cases, intangible assets are created through reallocation of prior, internal expenses, such as when research and development costs are converted into the intangible asset of a patent. Local law and accounting standards often influence what can or must be considered an intangible asset.

Enable the Intangible Assets tab

Before you can enter any transaction related to a intangible asset, the intangible asset itself must be created in Manager. If the Intangible Assets tab has not already been enabled, click Customize below the left navigation pane. Check the box for Intangible Assets and click Update below the list:

When the tab is enabled, four accounts are automatically activated in your chart of accounts:

  • Intangible assets, an asset account recording the purchase cost of all intangible assets
  • Intangible assets, accumulated amortization, a contra asset account summing amortization to date of all intangible assets
  • Intangible assets - amortization, recording current amortization expenses
  • Intangible assets - loss on disposal, an expense account recording and loss (gain) on disposal of intangible assets

These accounts cannot be disabled while the Intangible Assets tab is enabled, but they can be renamed under Settings Chart of Accounts.

Create the intangible asset

Return to the left navigation pane, click Intangible Assets, then New Intangible Asset:

Complete the entry:

34%20AM

  • Name is the name that will appear for the intangible asset in reports and lists.
  • Code is an optional alphabetic or numeric designation for the intangible asset. Numeric entries will control the position of the asset on lists.
  • Description accepts detailed information about the intangible asset.

Click Create.

Example
ACME Industries purchased the patent on an electric controller from its inventor. The patent has a remaining life of 15 years, so an intangible asset is created:

29%20AM

The intangible asset will show under the Intangible Assets tab with no book value:

Note
To this point, you have not recorded the purchase of the intangible asset. You have only set it up in Manager. Now you can record financial transactions related to the intangible asset.

Purchase an intangible asset

Purchase of the intangible asset can be recorded under following tabs:

  • Receipts & Payments, if purchased from the seller without credit
  • Purchase Invoices, if purchased from a supplier on credit
  • Expense Claims, if paid by you or someone else on behalf of the business
  • Journal Entries, if acquisition was financed by a loan or transfer of expenses

When recording the purchase of an intangible asset under any of these tabs, post the amount spent to the Intangible assets account and the subaccount for the intangible asset you have purchased:

If you purchase the intangible asset using a loan, you should also create a liability account in your chart of accounts with a name something like Loan before you record the purchase transaction. Then record the journal entry as a debit to the Intangible assets account for the purchase cost and a credit to the Loan account of the same amount. Loan repayments must be posted to the Loan account. They have nothing to do with purchase cost, amortization, or book value of the intangible asset.

Example
ACME Industries purchases its patent from the inventor for cash, entering the 10,500 cost with a bank transaction. The purchase cost now shows in the Intangible Assets tab register:


The purchase cost of the intangible asset will be combined with any other intangible assets’ costs and displayed under the Assets category on the Summary page:

Support
Subscribe to Updates

Subscribe to our newsletter and get exclusive product updates you won't find anywhere else straight to your inbox.

© 2018 - Based in Sydney, Australia but providing goodness globally