What are intangible assets?

Published Thursday 23 July 2026

Table of contents

• What are intangible assets?
• Examples of intangible assets
• Types of intangible assets
• Intangible assets vs. tangible assets
• How to value intangible assets
• Amortization of intangible assets
• How intangible assets appear on the balance sheet
• Why intangible assets matter for small businesses
• Track your intangible assets with Xero
• FAQs on intangible assets

Key takeaways

• Intangible assets are non-physical resources like patents, trademarks, copyrights, and goodwill that add long-term value to your business. They're recorded on the balance sheet when acquired and can make up a significant share of what your business is worth.
• Intangible assets fall into 2 categories: identifiable (patents, trademarks, licenses) and unidentifiable (goodwill, brand equity). Knowing the difference helps you report them correctly under US GAAP.
• Unlike tangible assets, intangible assets don't depreciate. Instead, those with a definite useful life are amortized over time, while indefinite-life assets like goodwill are tested for impairment each year.
• Tracking and valuing your intangible assets gives you a clearer picture of your business's total worth, which matters when you're seeking funding, planning a sale, or making strategic decisions.

What are intangible assets?

Intangible assets are non-physical resources that hold value for your business over the long term. Unlike equipment or inventory, you can't touch or see them, but they play a central role in how your business operates, competes, and grows.

Common examples include patents, trademarks, copyrights, brand recognition, and goodwill. These assets give your business a competitive edge by protecting your ideas, building customer trust, and creating barriers that competitors can't easily replicate.

In the S&P 500, intangible assets represent roughly 92% of total market value, underscoring their growing importance on the balance sheet. For small businesses, intangible assets can be just as significant relative to your overall value.

Under US GAAP, intangible assets are classified as non-current assets. They appear on your balance sheet when acquired through a purchase or business combination. Internally developed intangible assets, like a brand you've built over time, generally aren't recorded on the balance sheet unless specific criteria are met.

Examples of intangible assets

Intangible assets come in many forms depending on your industry and how your business operates. Here are the most common types you're likely to encounter.

Goodwill

Goodwill arises when one business acquires another for more than the fair value of its net identifiable assets. It reflects factors like customer loyalty, brand reputation, and employee expertise. Goodwill only appears on the balance sheet after an acquisition, not from organic growth.

Patents

A patent gives you the exclusive right to make, use, or sell an invention for a set period, typically 20 years in the US. Patents protect innovations like new products, processes, or technologies. If you've developed something unique, a patent prevents competitors from copying it.

Trademarks

Trademarks protect names, logos, slogans, and other brand identifiers that distinguish your business from competitors. Unlike patents, trademarks can last indefinitely as long as you continue using them and renew the registration. A recognizable trademark builds customer trust and brand recognition over time.

Copyrights

Copyrights protect original creative works like written content, music, software code, and artwork. In the US, copyright protection typically lasts for the life of the creator plus 70 years. If your business produces original content or creative materials, copyrights keep others from using them without permission.

Licenses

A license gives your business the legal right to use another party's intellectual property, technology, or brand. For example, you might license software, a franchise model, or a patented manufacturing process. Licenses are usually granted for a specific period and may come with ongoing fees or royalties.

Brand equity

Brand equity is the added value your business gains from having a well-known and respected brand name. It's built through consistent customer experiences, marketing, and reputation over time. Strong brand equity means customers choose your product or service over alternatives, even at a higher price.

Software

Software your business purchases or develops can qualify as an intangible asset if it provides value beyond a single accounting period. Purchased software is typically recorded at cost, while internally developed software follows specific US GAAP rules for capitalization. Many small businesses rely on software as a core operational asset.

Types of intangible assets

Intangible assets are generally grouped into 2 categories based on whether they can be separately identified and measured. Understanding this distinction matters for how you report and manage them on your financial statements.

Identifiable intangible assets

Identifiable intangible assets can be separated from your business and sold, transferred, or licensed independently. They have a clear legal or contractual basis that makes them measurable. Examples include:

• Patents
• Trademarks
• Copyrights
• Licenses and permits
• Customer lists
• Purchased software
• Franchise agreements

Because these assets can be individually valued, they're recorded on your balance sheet at their fair value when acquired.

Unidentifiable intangible assets

Unidentifiable intangible assets can't be separated from your business or measured on their own. They exist because of your business as a whole, not as standalone items. The most common example is goodwill, which captures the excess purchase price in an acquisition above the fair value of identifiable net assets.

Brand equity and company reputation also fall into this category. While they clearly add value, there's no standard way to isolate and measure them independently. Under US GAAP, unidentifiable intangible assets aren't amortized but are tested for impairment at least once a year.

Intangible assets vs. tangible assets

Tangible and intangible assets both contribute to your business's value, but they differ in several key ways. Here's how they compare across the areas that matter most for your financial reporting.

Physical form

• Tangible assets have a physical form you can see and touch, like machinery, vehicles, or fixed assets such as office furniture.
• Intangible assets have no physical presence. They exist as rights, relationships, or intellectual property.

Valuation

• Tangible assets are typically easier to value because there's often a market price or replacement cost you can reference.
• Intangible assets are harder to value because their worth depends on factors like future earnings potential, brand strength, or legal protections.

Depreciation vs. amortization

• Tangible assets lose value over time through depreciation, which spreads their cost across their useful life.
• Intangible assets with a definite useful life are amortized instead. Those with an indefinite life, like goodwill, aren't amortized but are reviewed for impairment.

Liquidity

• Tangible assets are generally easier to sell or convert to cash because buyers can physically inspect them.
• Intangible assets are harder to liquidate. Their value is often tied to a specific business context, making them less transferable.

How to value intangible assets

Putting a dollar figure on intangible assets isn't as straightforward as valuing physical property, but it's essential when you're buying or selling a business, seeking investment, or reporting financials. The basic formula gives you a starting point:

Intangible assets = market value - net tangible assets

This formula works by subtracting the value of all tangible assets (minus liabilities) from the total market value of the business. The difference represents the estimated value of intangible assets. Beyond this formula, there are 3 commonly used approaches.

Market approach: This method looks at what similar intangible assets have sold for in recent transactions. It works best when there's an active market for comparable assets, like certain types of licenses or domain names.

Income approach: This method estimates the future income an intangible asset will generate, then discounts it to its present value. It's commonly used for patents, customer relationships, and proprietary technology where you can project revenue streams.

Cost approach: This method calculates what it would cost to recreate or replace the intangible asset from scratch. It's most useful for assets like internally developed software or assembled workforces where you can estimate development costs.

Amortization of intangible assets

Amortization is how you spread the cost of an intangible asset over its useful life. It works similarly to depreciation for tangible assets, but only applies to intangible assets that have a definite lifespan. How you handle amortization depends on whether the asset has a definite or indefinite useful life.

Definite-life intangible assets

Intangible assets with a definite useful life are amortized over that period. Examples include patents (typically 20 years), copyrights, and licensing agreements with set expiration dates. The most common method is straight-line amortization, which divides the asset's cost evenly across each year of its useful life.

For example, if you acquire a patent for $100,000 with a 10-year useful life, you'd record $10,000 in amortization expense each year. This gradually reduces the asset's carrying value on your balance sheet while recognizing the expense on your income statement.

Indefinite-life intangible assets

Some intangible assets don't have a foreseeable end to their useful life. Goodwill and certain trademarks fall into this category. Under US GAAP, these assets aren't amortized. Instead, you're required to test them for impairment at least once a year.

Impairment testing compares the asset's carrying value on your balance sheet to its current fair value. If the fair value drops below the carrying value, you record an impairment loss. This write-down reduces the asset's value on your balance sheet and shows up as an expense on your income statement.

How intangible assets appear on the balance sheet

How an intangible asset gets onto your balance sheet depends on how your business obtained it. The rules under US GAAP treat acquired and internally developed intangible assets quite differently.

Acquired intangible assets

When you purchase an intangible asset, either on its own or as part of a business acquisition, it's recorded on your balance sheet at fair value. In a business combination, each identifiable intangible asset is valued separately, and any excess purchase price above the total fair value of net identifiable assets is recorded as goodwill.

Internally developed intangible assets

Intangible assets you build within your business, such as a brand name, customer relationships, or proprietary processes, generally aren't recorded on the balance sheet under US GAAP. The costs of developing these assets are usually expensed as incurred. The main exception is internally developed software, where certain development costs can be capitalized once specific technical criteria are met.

Balance sheet classification

All intangible assets appear in the non-current (long-term) assets section of your balance sheet. They're listed separately from tangible fixed assets like property and equipment. Your balance sheet should show the gross carrying amount, accumulated amortization, and net book value for each intangible asset or category.

Why intangible assets matter for small businesses

Even if your business doesn't hold patents or big-name trademarks, you likely have intangible assets that contribute to your success. Recognizing and protecting them helps you make smarter strategic decisions.

Competitive advantage: Your proprietary processes, customer relationships, and specialized knowledge set you apart from competitors. These intangible assets create barriers that others can't easily duplicate, giving you a stronger position in your market.

Intellectual property protection: Registering trademarks, copyrights, or patents protects the ideas and branding you've invested time and money to develop. Without formal protection, competitors could use your original work without consequence.

Brand value: The reputation you've built with customers is one of your most valuable assets. Strong brand recognition drives repeat business, referrals, and pricing power. Understanding its worth helps when you're seeking loans, negotiating partnerships, or planning a future sale.

Business valuation: When someone evaluates your business, intangible assets often make up a large share of the total value. Having a clear picture of these assets, and how they're recorded, puts you in a stronger position during funding rounds, acquisitions, or exit planning. Learn more about how to value a business.

Track your intangible assets with Xero

Keeping accurate records of your intangible assets is a key part of managing your business finances. With clear visibility into what you own and what it's worth, you can make more confident decisions about growth, investment, and long-term planning.

Xero's cloud accounting software helps you stay on top of your fixed asset register, track amortization, and keep your balance sheet up to date. You can manage your books from anywhere and get the real-time financial insights you need to run your business with confidence. Get one month free.

FAQs on intangible assets

Here are answers to some frequently asked questions about intangible assets and how they affect your business finances.

Are intangible assets current assets?

No, intangible assets aren't current assets. They're classified as non-current (long-term) assets on the balance sheet because they provide value over more than 1 accounting period, unlike current assets that are used or converted to cash within a year.

What is the difference between tangible and intangible assets?

Tangible assets have a physical form, like equipment or property, while intangible assets are non-physical, like patents or trademarks. Tangible assets are depreciated over time, and intangible assets with a definite life are amortized instead.

How are intangible assets recorded on a balance sheet?

Acquired intangible assets are recorded at fair value on the balance sheet as non-current assets. Internally developed intangible assets, like a brand you've built, are generally not recorded under US GAAP because the development costs are expensed as incurred.

Can intangible assets be depreciated?

Intangible assets aren't depreciated. Instead, those with a definite useful life are amortized, which spreads their cost over time. Indefinite-life intangible assets like goodwill are tested for impairment annually rather than amortized.

What happens to intangible assets during a business acquisition?

During an acquisition, each identifiable intangible asset is valued separately and recorded on the buyer's balance sheet at fair value. Any amount paid above the total fair value of net identifiable assets is recorded as goodwill.