intangible asset

(noun)

Any valuable property of a business that is not does not appear on the balance sheet, including intellectual property, customer lists, and goodwill.

Related Terms

Examples of intangible asset in the following topics:

  • Assets

    • Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset.
    • Two major classes are tangible assets and intangible assets .
    • Tangible assets contain various subclasses, including current and fixed assets.
    • Current assets include inventory, while fixed assets include such items as buildings and equipment.
    • Examples of intangible assets are goodwill, copyrights, trademarks, patents, computer programs, and financial assets, including such items as accounts receivable, bonds and stocks.

  • Capital Expenditures

    • Capital costs are incurred for the purchase of land, buildings, construction of assets, and equipment, etc., used during business operations.
    • CAPEX include expenses for tangible goods, such as the purchase of plants and machinery, as well as expenses for intangibles assets, such as trademarks and software development.
    • The CAPEX costs are then amortized or depreciated over the life of the asset in question.
    • Repairing an existing asset so as to improve its useful life
    • Capitalized interest, if applicable, is also spread out over the life of the asset.The counterpart of capital expenditure is operational expenditure ("OpEx").

  • Basic types of accounts

    • Asset accounts: represent the different types of economic resources owned by a business, common examples of asset accounts are cash, cash in bank, equipment, building, inventory, prepaid rent, goodwill, accounts receivable.Assets are usually broken down into three categories: Current assets, fixed assets, and intangible assets.
    • Current assets are assets which could be converted to cash fairly quickly if necessary, certainly in less than a year.Examples of current assets include cash, cash in bank, inventory, prepaid rent, and accounts receivable.Fixed assets are assets of a more permanent nature like manufacturing equipment, buildings owned, and the like.Intangible assets, like goodwill, are monetary values assigned to intangibles like a brand name.It is typically used when accountants need to justify the purchase price of one company by another when the price cannot be justified by the monetary value of the purchased company's assets minus liabilities.Intangible assets are beyond the scope of this chapter as they apply more to larger corporations than to a start-up business.
    • Equity accounts: represent the residual equity of a business (after deducting from assets all the liabilities).In the case of a start-up company totally financed by the founder, it is often called owner's equity and represents the capital provided by the owner.If the company is a corporation and stock has been issued to the owner and to others, it is often called stockholders' equity.
    • Setting up an appropriate chart of accounts will take some careful thought on your part because you want to be sure that accounts are set up in each category (i.e. assets liabilities, etc. ) that will enable you to accumulate accounting transactions in a meaningful way.
    • For example, starting with the asset account category, you may decide that you need to begin your business with at least the following accounts:

  • Direct and Indirect Measurement

    • When it comes to financial reporting activities, the statement of cash flows is a useful tool when it comes to understanding a business's liquidity and available short-term cash and cash equivalent assets.
    • Cash flows from investing activities, such as the purchase of new equipment and the sale of assets.
    • The indirect method is quite a bit more involved than the direct method, as it incorporates valuation changes in non-cash assets as well.
    • Investment items in the indirect method include capital expenditures and investments (i.e. in securities, other businesses, tangible and intangible assets).

  • Sample Income Statement

    • Revenue: Cash inflows or other enhancements of an entity's assets during periods of delivering or producing goods, rendering services, or other activities constituting the ongoing major operations.
    • Expenses: Cash outflows, consumption of assets, or incurrence of liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities constituting the entity's ongoing major operations.
    • Depreciation / Amortization: The charge with respect to fixed or intangible assets that have been capitalized on the balance sheet for a specific accounting period.
    • It also includes gains that are either unusual or infrequent, but not both (gain from sale of securities or gain from fixed asset disposal).
    • Income tax expense: Sum of the amount of tax payable to tax authorities in the current reporting period (current tax liabilities/tax payable) and the amount of deferred tax liabilities or assets.

  • Owners' Equity

    • Shareholders' equity is the difference between total assets and total liabilities.
    • If liability exceeds assets, negative equity exists.
    • Businesses can be considered, for accounting purposes, sums of liabilities and assets.
    • At first, all the secured creditors are paid against proceeds from assets.
    • Ownership equity includes both tangible and intangible items (such as brand names and reputation/goodwill).

  • Equity Theory

    • The inputs that a participant contributes to a relationship can be either assets (entitling him/her to rewards) or liabilities(entitling him/her to costs).
    • Outcomes can be both tangible and intangible.

  • Service marketing versus goods marketing

    • In general, service products tend to be intangible, are often consumed as they are produced, are difficult to standardize because they require human labor, and may require the customer to participate in the creation of the service product.
    • Conversely, coffee producers create intangibility in order to appear different from competitors.

  • Defining the Balance Sheet

    • A standard company balance sheet has three parts: assets, liabilities, and ownership equity.
    • The main categories of assets are usually listed first, and typically in order of liquidity.
    • Assets are followed by the liabilities.
    • The difference between the assets and the liabilities is known as the equity (or the net assets, or the net worth, or capital) of the company, and according to the accounting equation, net worth must equal assets minus liabilities.
    • This balance sheet shows the company's assets, liabilities, and shareholder equity.

  • The Accounting Equation

    • The accounting equation is a general rule used in business transactions where the sum of liabilities and owners' equity equals assets.
    • A company with $30,000 in liabilities and $10,000 in owners' equity would have $40,000 in assets according to the accounting equation.
    • Or more correctly, the term "assets" represents the value of the resources of the business.
    • If the funds are borrowed to purchase the asset, assets and liabilities both increase.
    • If the company issues stock to obtain the funds for the purchase, then assets and equity both increase.