Question

How are natural resources and intangible assets accounted for? Why is this important?

Answer 1

• The cost of a natural resource is recorded in a noncurrent asset account. Depletion of a natural resource is recorded by allocating its cost to depletion expense using the units-of-production method. Depletion is credited to an Accumulated Depletion account.
• An intangible asset is recorded at the cost incurred to purchase it. The cost of an intangible asset with a definite useful life is allocated to expense using the straight-line method, and is called amortization. Intangible assets include patents, copyrights, leaseholds, goodwill, and trademarks.
• Both assets (intangible and natural) must be accounted for, giving companies an outlook of how their exact financial state and future thereof. It is essential for businesses to account for all of their expenses to avoid miscalculations or false predictions based on incorrectly stated records. Without accurate accountability of expenses, businesses could become understated or overstated for revenues, expenses, net income, total capital, and other areas of a business’s financial bookkeeping.