How to Show Accumulated Amortization on Balance Sheet

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Before understanding about "How to Show Accumulated Amortization on Balance Sheet?", you should know 3 simple definition of "amortization, amortization charge and and accumulated amortization"

amortization meaning

Amortization is the depreciation of intangible asset. It means decrease in the value of intangible asset. For example, we have bought the software but time to time advancement in software in the industry, value of our software will decrease. So, it must decrease from specific intangible asset

amortization charge

It means, current year depreciation charge on specific intangible asset.

accumulated amortization

Accumulated amortization is the total of depreciation on intangible asset from beginning of intangible asset to the balance sheet date. So, we will add the current year and previous year amortization charge in the beginning balance of accumulated amortization.

Now, we give simple answer "How to Show Accumulated Amortization on Balance Sheet?"

In simple words, it must be deducted from intangible asset on the balance sheet's asset side. But if there are lots of intangible assets or if there is big amount, the size of balance sheet will become big. So, we makes the notes below the balance sheet and where we show total amount of each tangible asset, add new intangible asset and disposals. After this, we have to deduct total accumulated amortization and we find the net balance of intangible asset and same is shown in the balance sheet.

Reason of this

When we deduct the accumulated amortization from historical intangible asset, we are try to show in the balance sheet today value of our intangible asset. We also, show the true balance sheet to our shareholder. With this, our shareholder can decide, whether he can keep our share or sell or other new investors can decide to invest in our company or not.

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