Journal Entry for Patent

Introduction

In business, the patent is an intangible asset that we buy to get exclusive rights to manufacture or sell certain products. Likewise, we can make the journal entry for the patent in order to capitalize its cost as an intangible asset on the balance sheet.

Additionally, we also need to amortize the cost of the patent over its useful life in order to allocate the cost and charge it to the income statement over the accounting periods. Likewise, we also need to make the journal entry for the patent amortization at the period-end adjusting entry in order to charge the amortized cost of the patent to the income statement.

In this case, the amortization of the patent at the period-end adjusting entry will decrease the total cost of the patent on the balance sheet by the amortized amount while increasing the amortization expenses on the income statement.

Journal entry for patent

We can make the journal entry for the patent by debiting the cost of acquiring the patent into the patents account and crediting the same amount to the cash account.

Account	Debit	Credit
Patents	XXXX
Cash		XXXX

As the patent is an intangible asset, this journal entry for the patent will increase the total intangible assets on the balance sheet by the cost of acquiring it. However, the impact on the total assets is zero as both patents and cash are the asset items on the balance sheet in which one increases while the other decreases.

Journal entry for patent amortization

We can make the journal entry for patent amortization by debiting the amortization expense account and crediting the patents account.

Account	Debit	Credit
Amortization expense	XXXX
Patents		XXXX

The journal entry for the patent amortization will increase the total amortization expenses on the income statement while decreasing the total assets on the balance sheet by the same amount.

Example

For example, on January 01, we have bought the patent for one of our products for $50,000 in cash. The patent lasts for 10 years, in which we can amortize the $50,000 for 10 years with the $5,000 per year ($50,000 / 10 years) at the period-end adjusting entry of December 31.

In this case, we can make the journal entry for the $50,000 by debiting this amount to the patents account and crediting the same amount to the cash account on January 01.

January 01:

Account	Debit	Credit
Patents	50,000
Cash		50,000

This journal entry for patent will increase the total intangible assets on the balance sheet by $50,000 as of January 01.

Later, at the period end adjusting entry of December 31, we can make another journal entry for the patent amortization by debiting the $5,000 to the amortization expense and crediting this same amount to the patents account.

Account	Debit	Credit
Amortization expense	5,000
Patents		5,000

This journal entry of patent amortization will decrease the cost of patents on the balance sheet by $5,000 as of December 31. Likewise, the total expenses on the income statement will increase by $5,000 while total assets on the balance sheet will decrease by the same amount of $5,000 on December 31.