Business owners use assets such as office desks, chairs, tables, computers, printers, and copiers as part of their operation. These items are referred to as tangible assets, or items of value that can be touched and measured.
However, intangible assets cannot be touched. While they hold value to the business, they do not have a physical presence. Examples of this type of asset classification include copyrights, patents, trademarks, trade names, or customer lists.
Sometimes it can be hard to tell whether an asset is tangible or intangible. For example, a customer list may be maintained on a computer and then printed on paper. Although the paper is a tangible item, the value of the information printed on it is the asset and, therefore, intangible.
For example, let’s look at the sale of a marketing business. If the business has maintained a customer base listing the companies and organizations it has worked with, the new owner can easily step into the business, because the customers are already in place. The customer base makes the business more valuable as the customers are a source of revenue for this type of business. Customer lists are considered intangible assets.
Copyrights are another example of how an intangible asset can be connected to a tangible product. This comes up frequently with book authors. A writer will create a book manuscript on a computer and print the work on paper for review. When the process is complete, hundreds or thousands of physical, tangible books will be printed. However, the ideas and thoughts within the book are valuable and are normally copyrighted. An author, publisher, business or some other organization will pay for the copyright. Once approved, that person or entity has the exclusive right to reproduce and sell the book. The intangible asset in this example is the copyright itself.
Patents work in a similar fashion. A person or company creates something original and wants to retain the rights to that design, so they file for a patent. Once approved, the patent (the idea, process, method) becomes the property of the person or company who created it. In the asset world, this is intangible but valuable to the business.
Regardless of the type of asset (tangible or intangible), the value is reported on the business balance sheet.
This article is provided by Patriot Software, Inc., a developer of online software for U.S. small businesses, including online payroll software, applicant tracking software, human resources software, an employee portal, and 1099 software. Patriot Software also offers a payroll tax filing service for payroll customers, and is currently developing bookkeeping software and a website builder. For more information, visit www.PatriotSoftware.com.