Under GAAP, there are two primary methods of keeping track of inventory: the perpetual method and the periodic method.
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Intangible assets are real, identifiable assets that are not physical objects. Common intangible assets include patents, copyrights, and trademarks.
Amortization is the process—very analogous to depreciation—in which an intangible asset’s cost is spread out over the asset’s life. Generally, intangible assets are amortized using the straight-line method over the shorter of:
- The asset’s expected useful life, or
- The asset’s legal life.
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When a company buys an asset that will probably last for greater than one year, the cost of that asset is not counted as an immediate expense. Rather, the cost is spread out over several years in a process known as depreciation.
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