Amortization

• Amortizing an intangible asset means spreading its worth over a number of years that finance people call "operating life" or "useful life." By allocating a resource's value over its operating life, accountants attempt to match revenue the asset will bring with expenses it will generate during the period under review. For example, a pharmaceutical company holds a patent worth $2 million relating to its top-producing pill, which in-house strategists think will have an active life of 20 years. As a result, the annual amortization expense amounts to $100,000, or $2 million divided by 20.
  
  

Financial Accounting and Reporting

• When a company amortizes its intangible resources, it debits the amortization expense account and credits the corresponding nonphysical asset account. Amortization expense increases operating costs and decreases net income. An organization doesn't pay for amortization the same way it does for selling, general and administrative expenses as varied as rent, litigation and office supplies. In addition to amortization, other non-cash expenses a business records include depreciation and depletion. An amortization charge makes it into a statement of profit and loss, also referred to as an income statement, P&L or report on income. Intangible assets are part of a balance sheet, often called a statement of financial position or report on financial condition.
  
  

Capitalizing vs. Expensing

• Amortization guidelines -- and the intangible assets they underlie -- arise when a company capitalizes operating costs. This is what finance people say when the business converts money it spends on an initiative into an asset. For example, a pharmaceutical company that ponies up substantial amounts for research and development may capitalize R&D outlays if they lead to the manufacturing of a pill.
  
  

Asynchronous Collaboration

• "Asynchronous collaboration" means working to achieve a common goal but not at the same time. That's what happens when a company sows the seeds of innovation, which ultimately produces intangible resources. Corporate strategists spearhead various initiatives before a business can lay claim to intangible assets. R&D engineers work with information technology specialists and market researchers to come up with products that clients want and relish. In-house counsel, marketing personnel and salespeople also weigh in on discussions that foster innovation and technological advance, the kind that ultimately lead to regulatory filings with the U.S. Patent and Trademark Office.