What Is an Intangible Asset?
An intangible asset is an asset that lacks physical substance but still holds value for a business — such as patents, trademarks, copyrights, brand, and goodwill. Like tangible assets, intangibles can generate economic benefit and appear on the balance sheet, typically amortized over their useful lives.
What an intangible asset is and why it matters
Intangible assets are increasingly where modern value lives — a software company's real worth may be its code, patents, and brand rather than any physical property. Accounting treats them carefully: purchased intangibles (a bought patent, or goodwill from an acquisition) are recorded at cost and amortized, while internally generated intangibles (a brand you built yourself) often can't be capitalized under GAAP and so don't appear on the balance sheet. This is why a company's market value can far exceed its book value — much of its worth is intangible and unrecorded.
A worked example
A company acquires a competitor for $5,000,000. The competitor's identifiable net assets are worth $3,500,000, so the extra $1,500,000 paid is recorded as goodwill — an intangible asset. Separately, the company buys a patent for $200,000 with a 10-year life and amortizes it at $20,000 per year. Both the goodwill and the patent are intangible assets on the balance sheet, though goodwill is tested for impairment rather than amortized on a schedule.
How firms handle it today
Firms record purchased intangibles at cost, maintain amortization schedules, and test goodwill for impairment — applying GAAP rules that differ from tangible-asset treatment.
Related terms
- Amortization
- Asset
- Valuation
- Book value
- Fixed asset
FAQ
What are examples of intangible assets?
Patents, trademarks, copyrights, licenses, brand, customer lists, and goodwill.
Are intangible assets amortized?
Finite-life intangibles like patents are amortized; indefinite-life intangibles like goodwill are tested for impairment instead.
Why isn't a company's own brand on its balance sheet?
GAAP generally doesn't allow internally generated intangibles to be capitalized, so a self-built brand goes unrecorded despite its value.