key term - Patent

Definition

A patent is a legal right granted by the government to an inventor, giving them exclusive rights to make, use, and sell their invention for a specific period of time. Patents are considered intangible assets because they do not have a physical form but provide economic benefits.

5 Must Know Facts For Your Next Test

1. Patents are classified as intangible assets on the balance sheet.
2. The cost of obtaining a patent can be capitalized and amortized over its useful life.
3. Patents typically have a legal life of 20 years from the filing date.
4. Amortization of patents is recorded as an expense on the income statement.
5. Legal fees and other costs associated with defending a patent can also be capitalized.

Review Questions

Related terms

Intangible Assets:

Assets that lack physical substance but provide economic value, such as patents, copyrights, and trademarks.

Amortization:

The process of gradually writing off the initial cost of an intangible asset over its useful life.

Trademark: A recognizable sign, design, or expression which identifies products or services of a particular source and distinguishes them from others.