Accumulated Amortization Journal Entry

Accumulated amortization is the total amortization expense of the intangible assets from the initial recognition up to the reporting date.

The amortization expense is the allocation of intangible assets balance to the expense on income statement. The company will allocate the cost of intangible assets over the useful life and record them as expenses. The assets will be useless at the end of the useful life, so the company has to record it to expense. However, instead of recording expenses at any particular period, they spread them equally over the useful life.

Intangible assets are the company assets that do not have any physical form. They include computer software, goodwill, patent, trademark, and so on. They are present on the company balance sheet under non-current assets section.

The journal entry of amortization expense will debit the expense and credit the accumulated amortization. The amortization expense will go straight to the income statement. It will reduce the company monthly profit.

The accumulated amortization is the contra account of the intangible assets present on the balance sheet. It increases the balance on the credit side and decreases on the debit side. So when the company

Journal Entry for Accumulated Amortization

The company has to calculate the amortization expense based on the intangible assets value and its define useful life. They simply allocate the total cost of intangible assets from balance sheet to the expense on income statement.

It means the balance of the assets will decrease in order to increase the expense. However, it is a bit complicated as we will not credit assets balance directly. We create another account which is the accumulated amortization to be the contra account of the intangible assets. When this account balance increases, it will decrease the assets’ net book value on balance sheet. The reported balance of intangibles will decrease, but we can still see the original cost.

The journal entry is debiting amortization expense and credit accumulated amortization.

Account	Debit	Credit
Amortization Expense	$$$
Accumulated Amortization		$$$

The journal entry is debiting amortization expense on income statement. The accumulated amortization is the contra account of the intangible assets. When it increases the balance, it will reduce the intangible asset net book value.

Example

Company ABC has purchased the trademark from the owner for $ 100,000. The trademark will last for 10 years. Please prepare journal entry for accumulated amortization.

Trademark is classified as an intangible asset on the company balance sheet. Due to its useful life, the trademark will be useless at the end of the period. So ABC has to amortize the asset to expense based on its life.

Amortization expense = $ 100,000 / 10 years = $ 10,000 per year

Company has to record an amortization expense of $ 10,000 per year. it will simply reduce the trademark balance on balance sheet and increase amortization expense.

The journal entry is debiting amortization expense of $ 10,000 and credit accumulated amortization of $ 10,000.

Account	Debit	Credit
Amortization Expense	10,000
Accumulated Amortization		10,000

At the end of the first year, the net book value of the trademark will decrease to $90,000. It is simply presented as below:

Account	Balance
Cost of trademark	$ 100,000
Accumulated Amortization trademark	($ 10,000)
Total	$ 90,000