The term Amortization is used to describe the write-off to cost expense of an intangible asset over its useful life.
Journal entry of amortization is a little bit different from usual double entry of other types of vouchers. in other types you will have a clear amount of money for income and outcome but in amortization you will have a parameter of time too.
In any organization, there are many accessories that are used for staff like chairs, tables, Desks, PC, Printers, …
But all of these office accessories will be amortized in pass of time and they have a useful lifetime. for example a chair could be used for 10 years and after that time, it should be replaced with a new one. so it is important to calculating a expense of replacing office accessories to have a clear reports of business profit and loss in long times.
How to do Journal Entry
The usual accounting entry for amortization consists of a debit to Amortization Expense and a credit to the intangible asset account.
|Amortization Expense||2300 $|
intangible asset account
There is no theoretical objection to crediting an accumulated amortization account rather than the intangible asset account, but this method is seldom encountered in practice.
Although it is difficult to estimate the useful life of an intangible such as a trademark, it is highly probable that such an asset will not contribute to future earnings on a permanent basis. The cost of the intangible asset should, therefore, be deducted from revenue during the years in which it may be expected to aid in producing revenue. Under the current rules of the Financial Accounting Standards Board, the maximum period for amortization of an intangible asset cannot exceed more than 40 years. The straight-line method normally is used for amortizing intangible assets.