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What are intangible assets? Definition, types, and ways to control them in 2025

By QuickBooks
Published on August 4, 2025

Intangible assets are more central to business value than ever—especially in industries driven by innovation, brand, and technology. While you won’t find them on a shelf, they can influence everything from revenue to reputation. This guide covers what qualifies as an intangible asset, how they’re valued and recorded, and the best ways to protect and manage them for long-term growth.

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Intangible assets definition

Intangible assets are non-physical yet valuable resources contributing to a business’s long-term success. Their worth often stems from intellectual property, brand recognition, trademarks, copyrights, patents, or customer relationships. To be classified as an intangible asset on the balance sheet, an item must meet all three of the following criteria:

  • Identifiability: It must be either separable—meaning it can be sold, licensed, or transferred—or arise from contractual or legal rights.
  • Control: The business must have the ability to benefit from the asset and prevent others from using it.
  • Future economic benefit: The asset is expected to generate future value, such as increased revenue or reduced costs.

Here are some key characteristics of intangible assets:

  • Lack physical substance and cannot be touched
  • Get value from rights, privileges, or competitive advantages
  • Can be identifiable or unidentifiable
  • Provide expected future economic benefits, such as revenue generation and cost savings

Once an intangible asset is recognized, businesses must account for its value over time—typically through amortization or impairment testing.

Why intangible assets are important

Intangible assets can have a big impact on your business’s sustainable growth. Here are some of the reasons why they are so important: 

  • Drive future earnings. Assets like trademarks, copyrights, or patents can generate revenue through product sales, licensing, or royalties.
  • Hard to copy. Your brand reputation or proprietary tech is unique and gives you an edge. These are things competitors can’t easily replicate.
  • Create long-lasting value. Innovation, brand exclusivity, and customer trust are often the foundation for a company’s ability to grow, compete, and stand out over time.
  • Set you apart. A strong brand or valuable intellectual property can help you charge premium prices, keep customers loyal, and grow into new markets.
  • Boost business valuation. Investors and lenders look closely at intangibles when assessing a company’s worth and future potential.
  • Support funding opportunities. A solid portfolio of intangible assets can make it easier to secure financing or attract investors.
  • Vital in certain industries. In fields like tech, media, or software, intangibles often make up most of a company’s value.

Types of intangible assets

Not all intangible assets are the same. Here’s a breakdown of the most common types.

Goodwill

Goodwill represents the excess value a company pays when acquiring another business beyond its identifiable assets and liabilities. 

  • What it reflects: Non-physical factors like brand reputation, customer loyalty, strong employee relationships, and proprietary processes—elements that contribute to a company’s earning power but aren’t individually listed on the balance sheet.
  • How it’s created: Goodwill is only recorded when one company purchases another for more than the fair value of its net assets. It cannot be generated internally through brand-building, marketing, or organic growth.
  • Accounting treatment: Unlike most intangible assets, goodwill is not amortized over time. Instead, it’s tested regularly for impairment—an accounting process to assess whether the goodwill still holds its original value. If it’s found to be impaired (due to poor performance, for example), the company must write down the value and recognize a loss on the income statement.

Goodwill example

A company acquires a competitor for $10 million, even though the competitor’s identifiable assets are worth only $8 million. The extra $2 million is recorded as goodwill, representing the value of the competitor’s brand, customer relationships, and reputation.

Brand recognition and trade names

Brand recognition refers to the extent to which consumers can identify a brand by its attributes—such as name, logo, or packaging—without explicit mention. Trade names are the official names under which a company conducts business. Both are considered intangible assets because they lack physical substance but contribute significantly to a company's value by influencing consumer behavior and fostering loyalty.

  • What they reflect: These assets reflect the reputation, customer loyalty, and market presence a company has built over time. Strong brand recognition and trade names can lead to increased sales, the ability to charge premium prices, and a competitive edge in the market.
  • How they’re created or acquired: Brand recognition is typically developed internally through consistent marketing efforts, quality products or services, and customer engagement. Trade names can be created internally or acquired through business combinations. 
  • Accounting treatment: Brand recognition and trade names are only recorded as intangible assets when they’re acquired through a purchase, like when one company buys another. They aren't listed on the balance sheet if developed internally through marketing or brand-building.

Trade name example 

A globally recognized trade name, such as a leading athletic brand or fast-food chain, has significant intangible value. Customers are more likely to choose it over unfamiliar names, even if the product is more expensive. This loyalty isn’t tied to a physical product but to the reputation, trust, and familiarity the brand has built over time. 

Copyrights

Copyrights are legal protections that grant creators exclusive rights to their original works—such as books, music, films, software, or visual art. These rights allow the creator to control how the work is used, copied, distributed, adapted, or displayed, helping to protect their intellectual and financial interests.

  • What they reflect: Copyrights represent ownership of intellectual property. They reflect a creator's right to benefit from their work and prevent others from using it without permission. For businesses, copyrights can be a valuable asset when tied to revenue-generating content like apps, media, marketing materials, or proprietary training content.
  • How they’re created or acquired: Copyright protection is automatically granted upon creation of the original work in a tangible form (e.g., written, recorded, or saved digitally). However, formal registration with the U.S. Copyright Office strengthens legal rights, particularly in enforcement and potential damages. 
  • Accounting treatment: Copyrights are only recognized as intangible assets when they’re acquired as part of a transaction, such as a business purchase. In those cases, they qualify as amortizable assets under Section 197 of the U.S. tax code.

Copyright example

A tech company creates an app and registers its copyright, securing exclusive rights to sell, license, or distribute the code.


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When registering, keep copies of all filings, renewal receipts, and use-in-commerce evidence. That makes enforcement smoother if you ever must go to court.


Patents

Patents provide inventors exclusive rights to produce, use, or sell an invention for a fixed period—generally 20 years from the filing date. They are designed to protect innovative ideas, technologies, or processes and prevent others from copying or using them without permission.

  • What they reflect: Patents represent ownership of a unique innovation or invention. They reflect the value of a company’s research and development efforts and can offer a significant competitive edge. Patents can increase revenue potential, reduce competition, and attract investors or partners.
  • How they’re created or acquired: Patents are granted through a formal application process, usually with the U.S. Patent and Trademark Office (USPTO).
  • Accounting treatment: Internally developed patents aren’t typically listed on the balance sheet. However, patents acquired through a business transaction, such as buying another company or its intellectual property, are recognized as intangible assets.

Patent example

A company acquires a smaller tech firm holding a proprietary manufacturing process patent. The acquiring company records the value of the patent as an intangible asset and amortizes it over the remaining 10 years of its useful life. This allows the company to recognize the cost gradually while benefiting from exclusive rights to the process.

Trademarks

Trademarks are legally protected symbols, words, phrases, logos, or designs that identify and distinguish a company’s goods or services from those of others. They help consumers recognize the source of a product and are a key part of a company’s brand identity.

  • What they reflect: Trademarks reflect brand recognition, market trust, and customer loyalty. A strong trademark can influence purchasing decisions, support premium pricing, and create long-term value for a business. They also serve as legal protection against imitation or misuse by competitors.
  • How they’re created or acquired: Trademarks can be developed internally and registered through the U.S. Patent and Trademark Office (USPTO), or they can be acquired through business purchases.
  • Accounting treatment: A trademark becomes an intangible asset on the balance sheet only when it is purchased or acquired as part of a business transaction.

Customer lists

Customer lists are compilations of information about a business’s clients, including contact details, purchasing habits, preferences, and sales history. They represent a significant source of value, especially for businesses that rely on direct marketing or customer retention.

  • What they reflect: Customer lists reflect the strength of a company’s client relationships and its ability to generate future revenue. They can be used for targeted marketing, upselling, and building long-term loyalty—all of which contribute to a business’s bottom line.
  • How they’re created or acquired: These lists are often developed internally over time but may also be purchased as part of a business transaction. 
  • Accounting treatment: Only customer lists acquired through a business transaction are recorded as intangible assets.

Customer list example

A company acquires another firm and gains access to its database of loyal customers. This list is recorded as an intangible asset and amortized over five years, reflecting its projected marketing value and contribution to sales.

Licenses

Licenses are intangible assets that provide legal permission for a business to operate in a specific way, use particular technologies, or serve certain markets. Common examples include software licenses, broadcasting rights, and government-issued operating permits.

  • What they reflect: Licenses reflect a company’s legal ability to access markets, tools, or content that it would otherwise not be able to use. They can be vital for revenue generation, compliance, or competitive positioning.
  • How they’re created or acquired: Licenses are typically obtained through agreements with a third party or via regulatory approval. 
  • Accounting treatment: Only purchased or acquired licenses—not internally obtained ones—are recognized as intangible assets on the balance sheet.

License example

A company purchases a broadcasting license as part of a media acquisition. The license is recognized as an intangible asset and amortized over its 10-year term, reflecting its value in allowing the company to operate in that space.

Are intangible assets current assets?

No. Intangible assets are classified as non-current (long-term) assets on the balance sheet since they typically provide economic benefits that last more than one year. 

Ways to control intangible assets

Effectively managing intangible assets is essential to preserving their value and ensuring they support your company's growth. Below are practical strategies organizations can use to safeguard and maximize these important assets:

Secure legal protection

Obtain and register patents, trademarks, and copyrights to establish exclusive rights and prevent unauthorized use.

Implement usage policies

Create internal guidelines for how intangible assets are used and shared. Include intellectual property (IP) ownership and confidentiality clauses in employee and contractor agreements.

Manage licensing and contracts

License assets to third parties under well-defined terms. Use contracts to outline usage rights, responsibilities, and enforcement procedures.

Conduct regular audits and valuations

Periodically assess and document intangible assets, their value, and associated risks. Assign oversight roles to manage high-value assets.

Enforce rights and mitigate risks

Perform risk assessments to uncover potential threats. Monitor for infringement and take legal action when necessary.

Control access and maintain confidentiality

Restrict access to sensitive assets like trade secrets to authorized personnel. Use non-disclosure agreements, encryption, and other security measures to protect information.

Invest in ongoing improvement

Support research and development, marketing, and staff training to sustain and grow asset value. Stay informed on legal updates and industry best practices.

Intangible vs. tangible assets

The chart below outlines the key features and differences between intangible and tangible assets, highlighting how each type contributes to a company’s value and how they are treated in accounting.

Amortization of an intangible asset

Amortization of an intangible asset refers to spreading the asset’s cost over its useful life. Instead of expensing the full cost all at once, a portion is recorded each year as the asset provides value—similar to how depreciation works for physical assets. This applies to intangible assets with a finite life, like patents or copyrights.

Impairment testing of intangible asset

Impairment testing applies to intangible assets with an indefinite useful life, like goodwill or some trademarks. Since these assets aren’t amortized annually, companies must test them at least once a year to check whether their value has declined.

How to calculate the value of intangible assets

The value of an intangible asset is typically calculated based on its original cost minus any amortization and impairment losses. This resulting figure is the asset’s current book value.

Formula:

Intangible Asset Book Value = Original Cost – Accumulated Amortization – Impairment Losses

This calculation is used for assets with a limited useful life, such as patents, licenses, or software. For assets with an indefinite life (like goodwill), valuation is reassessed periodically for impairment rather than amortized.

Disposal of intangible assets

When an intangible asset no longer provides economic benefit to the business, it must be removed—or “disposed of”—from a company’s accounting records. This means eliminating its remaining book value and recognizing any related expense, loss, or gain. Disposal typically occurs for the following reasons:

  • End of useful life, such as an expired patent or a software license that is no longer valid
  • Impairment caused by obsolescence, legal restrictions, or diminished usefulness
  • Business closure or bankruptcy requiring full removal of assets
  • Sale or transfer, where the asset is no longer owned

Loss of value from mismanagement or reputational harm, such as with brand equity or goodwill

Classifications of intangible assets

Classifying intangible assets helps you understand how to record them in your books and how they affect your bottom line. Whether you recognize them up front, amortize them over time, or test them for impairment, classifying them can greatly help you.

Identifiable assets

Identifiable assets are items that can be separated from the business and sold, licensed, transferred, or exchanged—either on their own or with related agreements.

They can be:

  • Tangible, like equipment or buildings
  • Intangible, like patents, trademarks, or franchise rights

Intangible identifiable assets often come from contractual or legal rights and are recorded separately on the balance sheet, especially in business acquisitions.

Common examples include:

  • Patents
  • Trademarks
  • Copyrights
  • Licenses
  • Franchise agreements
  • Proprietary data or algorithms
  • Land and buildings
  • Machinery and equipment

Unidentifiable assets

Unidentifiable assets can’t be separated from the business or sold independently. They’re deeply tied to the company’s overall value and usually show up as part of goodwill during a business acquisition.

They’re not listed individually on the balance sheet, but they can still make a major impact on a company’s reputation and long-term success.

Examples include:

  • Goodwill
  • Brand recognition and equity
  • Reputation
  • Customer relationships
  • Employee expertise
  • Company culture
  • Overall market position

Finite vs. indefinite useful life

A finite useful life means you expect the asset to help you make money for a set time, then it runs out. Think patents, copyrights, or fixed-term licenses. You can amortize these and spread their cost over their life.

Indefinite useful life means you don’t see an end to the cash flow it brings you. Examples are some trademarks, brand names, and goodwill. You don’t amortize these. You test them each year for impairment, i.e., a drop in value.

Acquired vs. internally generated intangibles

Acquired intangibles are the ones you buy from someone else or get in a merger. You recognize them if they meet the asset definition and criteria.

Internally generated intangibles are those you build with your own efforts. Accounting rules, such as Generally Accepted Accounting Principles (GAAP) and IAS 38 of the International Financial Reporting Standards, make it hard to capitalize these. You expense most costs as you go—think brand building or customer research.

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Where intangible assets are found on the balance sheet

Intangible assets appear in the non-current assets section of the balance sheet, meaning they’re expected to benefit the company for more than a year. These are listed after current assets and tangible long-term assets. A typical asset breakdown looks like this:

  • Current assets: Cash, accounts receivable, inventory
  • Non-current assets:
  • Property, plant, and equipment (physical assets)
  • Intangible assets (e.g., patents, trademarks, goodwill)

Intangible assets included on the balance sheet

Only intangible assets a company acquires through a direct purchase or a business acquisition are included on the balance sheet. They are recorded at their purchase price or fair market value. Intangibles developed in-house, such as a brand built organically, are usually excluded under accounting guidelines.

An infographic showing an example of a consolidated balance sheet

Accounting for intangible assets 

Various accounting standards set the ground rules for consistency and comparability. For instance, under IFRS, you follow IAS 38, which tells you how to spot, measure, and disclose intangible assets in your financials. 

Then there’s ASC 350, which guides how you account for these nonphysical resources, especially the annual impairment tests for goodwill. Let’s now explore some key aspects you should know about before accounting for intangible assets.

When to record an intangible asset

You record or recognize an intangible asset only when it meets all these tests:

  • Definition criteria: It’s identifiable, nonmonetary, and controlled by you.
  • Probable future benefits: It’s likely to bring cash in through sales, cost savings, or other advantages.
  • Reliable cost measurement: You can track exactly what you paid for it.

The “identifiability” rule means it must be separable (you could sell or license it) or stem from rights you hold. Purchased assets usually clear these hurdles easily. But most internally generated items, such as building brand image or customer relationships, fail the reliable-cost test, so you expense them instead.

Accounting for internally generated intangibles vs. purchased intangibles

You capitalize purchased intangibles that meet recognition criteria. Goodwill you generate internally never qualifies for this. Only goodwill from paying over fair value in a business combo is acceptable. You expense most internally generated intangibles as you go because it’s too hard to pin down exact costs.

That said, you can capitalize development costs (not research) if you can show: 

  • Technical feasibility
  • Intent to finish and use or sell
  • Probable benefits
  • Available resources
  • Reliable cost tracking

Section 197 intangible assets

Section 197 intangibles are certain types of intangible assets defined by the IRS that are acquired in the context of buying a business. These assets follow specific rules for capitalization and amortization.


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Keep a separate tax schedule for Section 197 assets so you don’t mix up your 15-year write-offs with your accounting amortization. You can use tax preparation software like TurboTax to simplify things.


15-year straight-line amortization

Section 197 assets, such as goodwill, trademarks, customer relationships, and patents, must be amortized evenly over a 15-year (180-month) period, regardless of their actual useful life. The amortization begins in the month the asset is acquired.

Example: A $45,000 patent would be amortized at $3,000 annually ($45,000 ÷ 15).

If the purchase occurs mid-year, such as in June, the first year’s deduction is prorated (7 months in this case).

Capitalization of associated costs

Any expenses related to acquiring or defending the intangible—like legal or registration fees—must be capitalized as part of the asset’s cost basis. These cannot be deducted right away.

Example: Even if a trademark registration is ultimately denied, legal costs still get added to the basis until it’s clear the attempt is being abandoned.

Recognizing a loss

If a Section 197 intangible becomes worthless or is abandoned, the remaining value can only be deducted under certain conditions. Either the entire group of intangibles must be disposed of, or the full 15-year period must pass. Losses from partial dispositions aren’t deductible.

Determining the value of intangible assets

Intangible assets are not physical, so businesses use various methods to estimate their value. Here are the most common approaches:

1. Asset-based valuation

This method subtracts the value of tangible assets from the overall business value. For example, if a business is worth $5 million and has $3 million in physical assets, the remaining $2 million represents intangible assets like brand value or patents.

2. Income-based 

These methods estimate the value of an intangible asset based on the income it’s expected to generate over time.

  • Discounted Cash Flow (DCF):
  • Projects future cash flows—like licensing fees or royalties—and discounts them to present value. This is ideal for assets with steady, predictable earnings.
  • Capitalized Earnings:
  • Uses a multiplier on normalized (adjusted) earnings.
  • Example: If a company earns $500,000 annually and uses a 10% capitalization rate, the intangible asset would be valued at $5 million.
  • Relief from royalty method: 
  • Estimate the royalties you avoid paying by owning the IP rather than licensing it.
  • Multi-period excess earnings method (MPEEM): 
  • Attribute earnings to the asset after deducting returns on other assets.

3. Market-based

This approach uses recent sales of similar intangible assets, like trademarks or customer lists, to estimate value. It’s most useful when there’s an active market for comparable assets in the same industry.

  • Key method: 
  • Guideline transaction method—find deals for comparable assets and adjust for differences.
  • Limitation: 
  • True comparables are rare since each patent, trademark, or software has its quirks.

4. Cost-based 

This estimates the expense of recreating the asset from scratch. For example, it might involve calculating the cost to re-establish brand recognition or rebuild a software platform. It’s often used when no direct market comparisons are available.

  • Reproduction cost: The expense to build an exact replica, including the same design and quality
  • Replacement cost: The cost to create a functionally equivalent asset (may use newer tech)
  • Limitation: Doesn’t capture future earning power or unique synergies

5. Liquidation 

Used when a business is winding down, this method estimates what each asset—including intangibles—could sell for individually. It then subtracts total liabilities to determine the business’s net worth. Valuing intangibles in liquidation often requires professional input, since their resale value can be harder to determine.

An infographic explaining how and when to use intangible assets

Keep in mind

Valuing intangible assets isn’t always straightforward. It often involves expert input, especially for trademarks or customer lists. While methods like DCF and market comparisons help, it’s important to be clear and realistic with all assumptions.

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