Financial Education

The way companies account for intangible assets depends both on the accounting principles used and the method under which the assets were acquired or developed. Of critical importance to analysts and investors is whether the costs are expensed on the income statement as incurred or capitalized on the balance sheet (either permanently or reduced over time as an amortization expense). The choice also affects the statement of cash flows, as expensed items reduce operating cash flow while capitalized items are treated as investing cash flows.

While the accounting treatments are somewhat complicated, the table below outlines the general treatment of various items according to the applicable standard and the means of acquisition.

Other factors to consider include the length of time (if any) over which a capitalized asset will be amortized.

For more information, see all articles on: Accounting, Adjusting Reported Financial Statements, Financial Statement Analysis, Fundamental Analysis

See also:

Intangible Assets

Debt to Equity

Capitalization versus Expensing

Asset Impairment Charges

Goodwill