 Intangible assets are long-term assets, which have no physical form, meaning they're not tangible. Usually, they are legal rights. Some intangible assets have finite, useful lives, where others have indefinite useful lives. Intangible assets with finite useful lives rarely have residual values because the legal protections expire at the end of the useful life, rendering them worthless. Two common types of intangible assets with finite lives are patents and copyrights. Patents are legal rights granted by the federal government that grant exclusive rights for 20 years to produce and sell an innovation. Note that the useful life of a patent is often less than 20 years as technology changes render innovations outdated or obsolete. Copyrights are similar protections, but they cover works of art and software. The legal protection is the author's life plus 70 years. Three common types of intangible assets with indefinite useful lives are trademarks and trade names, franchises and licenses, and goodwill. Trademarks and trade names protect a distinct slogan or image of a company. Don't start your own company with the slogan, just do it, or Nike will sue you for trade name infringement. Franchises and licenses are privileges granted to sell products or services in accordance with specific conditions. And finally, goodwill is a unique intangible asset. It is the amount paid for a company in excess of the fair value of its net assets. This video will focus on the accounting for intangible assets with finite lives. Intangible assets with finite lives must have their costs allocated to expense over their useful lives. This process is known as amortization and it is similar to depreciation. When we record amortization, we debit amortization expense and credit the intangible asset. The method used to calculate amortization expense is the straight line method used in depreciation. Intangible assets cost minus its residual value, which will almost always be zero, divided by the useful life in years. This equals the amount of annual amortization expense. So let's look at an example. On January 1, Adam and the ants purchased a patent for $20,000. The journal entry to record the purchase of the patent is a debit to patent and a credit to cash for $20,000. Let's assume the patent has a useful life of 10 years, a legal life of 20 years. Which one should we use in our amortization calculation? We always use the useful life. So the patent cost of $20,000 minus a zero residual value divided by 10 years of useful life gives us $2,000 of annual amortization expense. So we would record the journal entry by debiting amortization expense and crediting the patent for $2,000.