Intangible Assets: Recording, Amortization, and Re-evaluation
Intangible assets are assets that have no physical form but benefit your business for more than one year, such as software licenses, trademarks, patents, franchise rights, and goodwill. They’re recorded in the system from the Assets app in the same way as fixed assets, after you create a category account for them in the chart of accounts.
Allocating the cost of an intangible asset over its life is called amortization in accounting, and it appears in the system as Depreciation; so everything about depreciation on the screens applies to amortizing an intangible asset.
Contents
- Step 1: Add the intangible assets account
- Step 2: Add the intangible asset
- Choose the amortization method
- Practical example
- Accounts created automatically
- Journal entries
- Automatic and manual amortization
- Impairment of the asset (re-evaluation)
- Selling the asset or its expiry (write-off)
- Common problems and solutions
- Important notes
- Frequently asked questions
Step 1: Add the intangible assets account
The Category Account field in the asset form shows only the accounts under Fixed Assets Accounts (such as Furniture and Fixtures, Equipment, Vehicles, Buildings, and Land). In accounts that don’t have Fixed Assets Accounts, it shows the accounts under Fixed Assets. So add a category account for intangible assets there once:
- Open the Chart of Accounts.
- Go to Assets → Fixed Assets → Fixed Assets Accounts. If you can’t find it, stay in Fixed Assets.
- Click Add Account, and choose Main Account.
- Enter the name, such as Intangible Assets, choose the type Debit, then click Save.
Result:
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Note: You can add more specific main accounts under Intangible Assets, such as Software and Licenses and Trademarks; all accounts under Fixed Assets Accounts appear in the Category Account field.
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Warning: If you add the account somewhere else in the chart, such as under Current Assets or Accumulated Depreciation, it won’t appear in the Category Account field when you add the asset.
Step 2: Add the intangible asset
- Open Assets and click Add Asset, or open Add Asset directly.
- Fill in the fields as in the following table, then click Save; the message Asset has been saved appears and you move to the asset page.
Basic information
| Field | What to enter for an intangible asset | Required |
|---|---|---|
| Name | The asset name, such as: Accounting software license. It can’t be repeated for another asset. | Yes |
| Code | The asset code. | Yes |
| Category Account | Choose Intangible Assets or the more specific account under it. | Yes |
| Useful Life | The period of benefit from the asset in Years or Months, such as the license period or the trademark protection period. With Straight-Line, the amortization amount is calculated from it automatically. | No |
| In Service Date | The date the asset starts being used. It can’t be before the Purchase Date. | Yes |
| Quantity | Usually leave it at 1. | No |
| Physical Location, Used By, Serial Number, and Barcode | Fields for physical assets; you can leave them empty. You can enter the license number in Serial Number. | No |
Purchase details
| Field | What to enter for an intangible asset | Required |
|---|---|---|
| Purchase Price and currency | The asset cost, such as the license price or the trademark registration fees. | Yes |
| Purchase Date | The date of the purchase entry. It can’t be in a closed period. | Yes |
| Cash Account | The account the cost was paid from, such as the treasury or bank. If the purchase is on credit, choose the supplier’s account. | Yes |
| Tax 1 and Tax 2 | The purchase tax, if any. An inclusive tax isn’t included in the asset cost. | No |
Asset depreciation
| Field | What to enter for an intangible asset | Required |
|---|---|---|
| Depreciation Method | The amortization method; most intangible assets use Straight-Line. (Details) | Yes |
| Salvage Value | The remaining value at the end of its life, usually 0 for intangible assets. | No |
| Auto Depreciation Frequency | How often an amortization entry is recorded, in Month, Day, or Week, such as every 1 month. | Yes, with Straight-Line and Declining-Balance |
| Depreciation Amount / 1 Month(s) | Calculated automatically: (Purchase Price − Salvage Value) ÷ Useful Life × Frequency. You can edit it. | Yes, with Straight-Line |
| Depreciation Percentage / 1 Month(s) | A percentage of the asset’s current value. | Yes, with Declining-Balance |
| Start Depreciation Auto Date | The date of the first amortization entry. It can’t be before the In Service Date. | Yes, with Straight-Line and Declining-Balance |
| Depreciation End Date | The end date of the license or right; amortization stops after it. | No |
| Accumulated Depreciation Account and Depreciation Expense Account | Leave them empty so the system creates an account for the asset, or choose an existing account. | No |
Choose the amortization method
| Method in the system | When to use it for an intangible asset | Required fields |
|---|---|---|
| Straight-Line | The most common: a license or right for a fixed period whose benefit is spread evenly. | Auto Depreciation Frequency, Depreciation Amount, Start Depreciation Auto Date |
| Declining-Balance (Percentage) | If the asset’s benefit is greater in its first years. | Auto Depreciation Frequency, Depreciation Percentage, Start Depreciation Auto Date |
| Units of Production | If the benefit is linked to usage, such as a license for a set number of units or users. | Cost Per Unit, Unit Name, Asset Total Units |
| Without Depreciation | Assets with an indefinite life, such as goodwill or a trademark that’s renewed continuously. | None |
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Note: With Units of Production, amortization isn’t recorded automatically; you record it manually from Add Manual Depreciation with the number of units used.
Practical example
A 3-year software license:
Category Account: Intangible Assets — Useful Life: 3 years — Purchase Price: 36,000 — Cash Account: Bank
Depreciation Method: Straight-Line — Salvage Value: 0 — Auto Depreciation Frequency: 1 Month
The Depreciation Amount / 1 Month(s) is calculated automatically: 36,000 ÷ 36 months = 1,000.
When you save, a purchase entry of 36,000 is recorded, then an amortization entry of 1,000 every month until the current value reaches zero after 36 months.
Accounts created automatically
| Account | Where it is in the chart of accounts | Use |
|---|---|---|
| (Asset name) | Under the selected category account, such as Intangible Assets. | The asset cost. |
| Accumulated Depreciation – (Asset name) | Under Accumulated Depreciation – Intangible Assets in Accumulated Depreciation. | The total recorded amortization. |
| Depreciation Expense – (Asset name) | Under Depreciation Expense. | The amortization expense in the income statement. |
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Note: The accumulated and expense accounts are created only if you leave the Accumulated Depreciation Account and Depreciation Expense Account empty. You can open the asset account from the account link at the top of the asset page.
Journal entries
| Operation | Debit | Credit |
|---|---|---|
| Purchase | The asset account (at cost without tax) + the tax account, if any | Cash Account |
| Amortization | Depreciation Expense – (Asset name) | Accumulated Depreciation – (Asset name) |
| Sell | The account receiving the price + accumulated depreciation | The asset account, with the difference as a gain or loss in Capital Gains & Loss |
| Write off | The selected account at the current value + accumulated depreciation | The asset account at cost |
| Re-evaluate (decrease) | The Revaluation account or the selected account | The asset account |
| Re-evaluate (increase) | The asset account | The Revaluation account or the selected account |
The book value of the intangible asset in the balance sheet = the asset account balance − the balance of its accumulated depreciation account.
Automatic and manual amortization
- With Straight-Line and Declining-Balance (Percentage), the system records the amortization entry automatically on each due date, and the next date appears in Next Depreciation Date.
- You can record additional amortization from the asset page → Add Manual Depreciation.
- Amortization stops when the Current Value reaches the Salvage Value, or after the Depreciation End Date; the asset status becomes Depreciated.
- The entries appear in the Depreciations tab on the asset page, with the Total Depreciation and the Current Value.
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Note: After the first amortization is recorded, the Purchase Price, Purchase Date, and Useful Life fields are locked. If you change the useful life before that, the message The depreciation amount has been recalculated based on the updated useful life. appears.
Impairment of the asset (re-evaluation)
If the value of an intangible asset decreases, such as a license that’s no longer fully used or goodwill whose value has dropped, record the new value with a re-evaluation:
- Open the asset and click Re-evaluate.
- In the re-evaluation information, enter the new Value and the Date.
- Leave the Account on the default account (the Revaluation account), or choose the impairment loss account you use.
- Save; the message Asset has been re-evaluated appears.
Result:
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Note: This is the only way to reduce the value of an asset Without Depreciation, such as goodwill. The re-evaluation date must be after the last amortization or operation recorded on the asset.
Selling the asset or its expiry (write-off)
| Case | Action | What happens |
|---|---|---|
| You sold the right or trademark to another party. | Sell: enter the selling price, the Cash Account, and the Date. | The asset account and its accumulated account are closed, and the gain or loss is recorded in Capital Gains & Loss. The message Asset has been sold successfully appears. |
| The license expired or was cancelled before its amortization was complete. | Write off: choose the Account (the default is Other Receivables) and the write-off date. | The remaining current value is charged to the selected account, and the current value becomes zero. The message Asset has been written off successfully appears. |
| The license expired after its amortization was complete. | No action needed. | The status is Depreciated, and the current value equals the salvage value (usually zero). |
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Warning: The Write off button doesn’t appear for an asset Without Depreciation; to remove an asset of this type, use Re-evaluate or Sell. Sell and Write off don’t appear for an asset that’s fully depreciated, sold, or written off.
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Note: In Write off, choose a suitable loss account instead of Other Receivables if the remaining value is a loss for the business.
Common problems and solutions
| Message | Reason | Solution |
|---|---|---|
| The purchase date must be earlier than the in service date | The in service date is before the purchase date. | Set the in service date on the purchase day or after it. |
| The in service date must be earlier than the depreciation end date | The depreciation end date is before the in service date. | Correct the depreciation end date. |
| The in service date must be earlier than the next depreciation date | The start depreciation auto date is before the in service date. | Start the amortization on the in service date or after it. |
| This name already exists | There’s an asset with the same name. | Change the name. |
| Required | A required field is empty, such as the Category Account or the Depreciation Amount. | Fill in the field. |
| You cannot add, edit, or delete a transaction on this day (date), within a closed period | The date is within a closed period. | Choose a date outside the closed period or open the period. |
| The write-off date cannot be before the last depreciation date. | The write-off date is before the last amortization entry. | Choose a date after the last amortization. |
| Date error, please check the depreciation dates of this asset | The re-evaluation date is before a recorded operation or amortization. | Choose a date after the last amortization or operation. |
| The current depreciation amount exceeds the purchase price | You changed the purchase price to less than the recorded amortization. | Review the purchase price. |
Important notes
- The system distinguishes between fixed and intangible assets only by the category account; so choosing Intangible Assets is what separates them in the balance sheet and reports.
- You can filter the Assets list by Category to show only intangible assets.
- Research, maintenance, and regular annual renewal costs are recorded as an expense, not an asset.
- If you bought several licenses with the same period, you can add them as one asset with a Quantity, or each license as a separate asset to track it.
Frequently asked questions
Is there a dedicated screen for intangible assets?
No. They’re recorded from Assets after you add a category account for them under Fixed Assets Accounts.
Why doesn’t the intangible assets account appear in the Category Account field?
Because it isn’t under Fixed Assets Accounts (or Fixed Assets if it doesn’t exist). Add it there.
What’s the difference between amortization and depreciation in the system?
There’s no difference in the system; amortization is recorded with the same Depreciation screens and accounts.
How do I record goodwill?
Add it as an asset under Intangible Assets with the Without Depreciation method, and record any decrease in its value with Re-evaluate.
How do I record software I bought in installments from a supplier?
Choose the supplier’s account in the Cash Account; the asset is recorded as a credit to the supplier, then pay the supplier from the payments.
The software license expired early. What should I do?
Use Write off to charge the remaining value to the loss account.
I renewed the license for a new year. Do I edit the old asset?
No. If the renewal is a purchase for a new period, add it as a new asset; if it’s a regular annual fee, record it as an expense.
Can I change the purchase price after amortization starts?
No. The Purchase Price is locked after the first amortization. To correct the value, use Re-evaluate.