Amortization of intangible assets means that the enterprise starts to accrue amortization expenses for the newly added intangible assets in the current month, but does not amortize the decreased intangible assets in the current month. This accounting treatment is different from the depreciation of fixed assets. When fixed assets increase in the current month, depreciation will not be accrued immediately, but will be accrued from next month. Fixed assets reduced in the current month shall still be depreciated in the current month until next month. Amortization expenses of intangible assets are included in management expenses, which reduces current profits, but does not affect operating cash flow. Amortized assets include intangible assets such as large-scale software and land use rights, as well as long-term prepaid expenses such as start-up expenses. These assets and expenses can contribute to the business and income of the enterprise for a long time, so their acquisition cost needs to be apportioned to each year.
Accounting treatment of amortization:
1, the definition of amortization: refers to the accounting process of allocating the cost of intangible assets to each period according to a certain method within its expected service life;
2. Amortized objects: mainly include intangible assets, such as patents, trademarks, copyrights, non-patented technologies and land use rights.
3. Amortization method: Common amortization methods include straight-line method, double declining balance method, and sum of years method.
4. Accounting entry of amortization: usually at the end of each accounting period, the amortization amount is recorded in the relevant expense account to reduce the book value of intangible assets;
5. Impact of amortization: Amortization expenses will affect the expense items in the income statement, and then affect the net profit of the enterprise. At the same time, the amortized intangible assets will be reflected in the balance sheet.
To sum up, amortization of intangible assets is an accounting treatment method for enterprises to accrue expenses for new intangible assets in the current month, which is different from depreciation of fixed assets. It directly affects the current profit, but does not touch the operating cash flow. The assets involved, such as large-scale software, land use rights, long-term deferred expenses, etc., are allocated to multiple accounting periods to reflect their value consumption in the process of bringing long-term benefits to enterprises.
Legal basis:
Regulations of People's Republic of China (PRC) Municipality on the Implementation of Enterprise Income Tax Law
Article 67
It is allowed to deduct the amortization expenses of intangible assets calculated by the straight-line method. The amortization period of intangible assets shall not be less than 10 year. As the investor or transferee of intangible assets, if the relevant laws or contracts stipulate the service life, it can be amortized in installments according to the stipulated or agreed service life. When an enterprise is transferred or liquidated as a whole, expenses for purchasing goodwill are allowed to be deducted.