What Is an Intangible Asset?

A Simple
Definition for Small Business (With
Examples)
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3. What Is an Intangible Asset? A Simple Definition for Small Business (With Examples)
An intangible asset is a resource that has no physical presence and has long-
term value for a business. Copyright and a company’s reputation are
considered intangible assets. They have value because a business has sole
legal or intellectual rights to them and they can help buy back destroyed
tangible assets like equipment, according to Business Dictionary.

In this article, we’ll cover:

 What Is an Intangible Asset?

NOTE: FreshBooks Support team members are not certified income tax
or accounting professionals and cannot provide advice in these areas,
outside of supporting questions about FreshBooks. If you need income
tax advice please contact an accountant in your area.

What Is an Intangible Asset?

In accounting, an intangible asset is a resource with long-term financial value
to a business. It also isn’t a material object.

The meaning of intangible is something that can’t be touched or physically

seen, according to the Cambridge Dictionary. Intangible resources don’t exist
physically, though they still have value.

Types of intangible assets include a business’s reputation, copyrights,

trademarks and brand recognition.

Purpose of Intangible Assets in Business

Intangible assets improve a small business’s long-term worth as opposed to
tangible (physical) assets like equipment or computer hardware that are used
to calculate a business's current worth.

Intangible assets have value thanks to the sole legal or intellectual rights they
enjoy. Intangible assets also improve the value of other assets.

 For example, Coca Cola may have a vast inventory. But the value of
that inventory is greatly increased by intangible assets like brand
recognition and a good reputation.
Intangible assets can’t be used as a guarantee (“collateral”) to get loans,
unlike tangible assets that lenders can seize if the loan isn’t paid back.

But if a company’s tangible resources are destroyed then its intangible assets
can help rebuild them.

 For example, a copywriter’s computer hardware is destroyed by a flood

in her apartment. She is an excellent writer with a good reputation.
When her clients hear about the flood, they try to create new projects for
her or refer their friends to her so that she can afford to buy new
hardware.
Some companies have intangible assets that are worth far more than their
tangible assets, according to Business Dictionary.

 For example, Coca-Cola might have machinery, real estate and

inventory that’s high value. But the value of its intangible assets, like
its reputation and trademarked branding (such as its logo and
packaging), are one of a kind and extremely valuable.

Destroying Intangible Assets

Tangible assets like buildings and machinery can be destroyed by fires and
floods. But intangible assets can also be destroyed.

Bankruptcy or other failure of a business will eliminate a business’s intangible

assets. Not being careful enough with one’s intangible assets can also
diminish or destroy their value.

 For example, a customer post a negative review on a restaurant’s

Facebook page. The owner posts a nasty response. Other customers
post on the page, protesting the nasty response. People share these
 posts on their personal Facebook pages. A local news website picks up
the story and posts it on their website. More people read and comment
on this post. Now plenty of past and potential customers have a
negative view of the restaurant. Its reputation is damaged.

Calculating Intangible Assets

To find the financial value of your small business’s intangible assets, use the
following formula, according to Business Dictionary:

Market Value of Business - Net Tangible Assets Value = Intangible Assets

Value

A note: the above formula only gives an approximate number. Market value is
the highest approximate price a buyer would pay (and you, the owner, would
accept) for your company.

To find net tangible assets, first list all your tangible assets. Items that are
considered tangible assets include, according to the Houston Chronicle:

 Inventory
 Money in your business bank account
 Buildings
 Land
 Machinery
 Furniture
 Computer hardware
 Office supplies (like a postage meter)
Tangible assets are either current (easily convertible into cash) or fixed (not
easily convertible into cash). Fixed assets are also called capital assets.

Intangible Assets in Balance Sheets

Assets normally appear on a company’s balance sheet, a common financial

statement generated in accounting software. But, intangible assets don’t
always appear on balance sheets, according to Accounting Tools.
This is because accounting doesn’t recognize internally-created intangible
assets, only acquired intangible assets such as those acquired in the process
of purchasing another business or bought individually.

In the below example, patents, an intangible asset, are included on the

balance sheet as they need to be amortized (the value needs to be spread
over each accounting period).

What Is an Intangible Asset? A Simple Definition for Small

Business (With Examples)

HubAccountingWhat Is an Intangible Asset? A Simple Definition for Small Business (With Examples)

An intangible asset is a resource that has no physical presence and has long-term value for a business.
Copyright and a company’s reputation are considered intangible assets. They have value because a
business has sole legal or intellectual rights to them and they can help buy back destroyed tangible
assets like equipment, according to Business Dictionary.

In this article, we’ll cover:

What Is an Intangible Asset?

NOTE: FreshBooks Support team members are not certified income tax or accounting professionals and
cannot provide advice in these areas, outside of supporting questions about FreshBooks. If you need
income tax advice please contact an accountant in your area.
What Is an Intangible Asset?

In accounting, an intangible asset is a resource with long-term financial value to a business. It also isn’t a
material object.

The meaning of intangible is something that can’t be touched or physically seen, according to the
Cambridge Dictionary. Intangible resources don’t exist physically, though they still have value.

Types of intangible assets include a business’s reputation, copyrights, trademarks and brand recognition.

Purpose of Intangible Assets in Business

Intangible assets improve a small business’s long-term worth as opposed to tangible (physical) assets
like equipment or computer hardware that are used to calculate a business's current worth.

Intangible assets have value thanks to the sole legal or intellectual rights they enjoy. Intangible assets
also improve the value of other assets.

For example, Coca Cola may have a vast inventory. But the value of that inventory is greatly increased by
intangible assets like brand recognition and a good reputation.

Intangible assets can’t be used as a guarantee (“collateral”) to get loans, unlike tangible assets that
lenders can seize if the loan isn’t paid back.

But if a company’s tangible resources are destroyed then its intangible assets can help rebuild them.

For example, a copywriter’s computer hardware is destroyed by a flood in her apartment. She is an
excellent writer with a good reputation. When her clients hear about the flood, they try to create new
projects for her or refer their friends to her so that she can afford to buy new hardware.

Some companies have intangible assets that are worth far more than their tangible assets, according to
Business Dictionary.

For example, Coca-Cola might have machinery, real estate and inventory that’s high value. But the value
of its intangible assets, like its reputation and trademarked branding (such as its logo and packaging), are
one of a kind and extremely valuable.

Destroying Intangible Assets

Tangible assets like buildings and machinery can be destroyed by fires and floods. But intangible assets
can also be destroyed.

Bankruptcy or other failure of a business will eliminate a business’s intangible assets. Not being careful
enough with one’s intangible assets can also diminish or destroy their value.

For example, a customer post a negative review on a restaurant’s Facebook page. The owner posts a
nasty response. Other customers post on the page, protesting the nasty response. People share these
posts on their personal Facebook pages. A local news website picks up the story and posts it on their
website. More people read and comment on this post. Now plenty of past and potential customers have
a negative view of the restaurant. Its reputation is damaged.

Calculating Intangible Assets

To find the financial value of your small business’s intangible assets, use the following formula,
according to Business Dictionary:

Market Value of Business - Net Tangible Assets Value = Intangible Assets Value

A note: the above formula only gives an approximate number. Market value is the highest approximate
price a buyer would pay (and you, the owner, would accept) for your company.

To find net tangible assets, first list all your tangible assets. Items that are considered tangible assets
include, according to the Houston Chronicle:

Inventory

Money in your business bank account

Buildings

Land

Machinery

Furniture

Computer hardware

Office supplies (like a postage meter)

Tangible assets are either current (easily convertible into cash) or fixed (not easily convertible into cash).
Fixed assets are also called capital assets.

Intangible Assets in Balance Sheets

Assets normally appear on a company’s balance sheet, a common financial statement generated in
accounting software. But, intangible assets don’t always appear on balance sheets, according to
Accounting Tools.

This is because accounting doesn’t recognize internally-created intangible assets, only acquired
intangible assets such as those acquired in the process of purchasing another business or bought
individually.

In the below example, patents, an intangible asset, are included on the balance sheet as they need to be
amortized (the value needs to be spread over each accounting period).