Accumulated amortization is a method used in accounting to record the year-over-year impairment of intangible assets. According to accounting customs, the debit side indicates an increase and the credit side indicates a decrease. Therefore, in accumulated amortization, the increase in debits actually indicates an increase in the impairment of intangible assets, that is, a decrease in assets. Therefore, the debit side of accumulated amortization is used to indicate an increase in the impairment of an asset.
Below I will elaborate on the increase and decrease of the accumulated amortized debit through several scenarios.
1.If a company buys an intangible asset, such as a patent right, assume that the patent right is worth $100,000. In accounting, this intangible asset is accounted for in two accounts: one is intangible asset - cost and the other is intangible asset - accumulated amortization.
The company purchased the patent rights and the intangible asset-cost account was debited by USD 100,000.
At the same time, since patent rights are an asset that decreases year by year, they need to be amortized cumulatively.
The accrued amortization account was credited by $100,000 to represent the impairment of assets.
2.Suppose that after one year of use, the value of the patent right has been reduced to $90,000. In accounting, the amount of accumulated amortization needs to be updated.
With year-end adjustments, the intangible asset-cost account remains unchanged at $100,000.
In order to reflect the impairment of assets, a debit of USD 10,000 was added to the accumulated amortization account to indicate the recognition of asset impairment.
These examples illustrate the situation where the accumulated amortized debit represents an increase in impairment of an asset. It is important to note that negative debit increases are generally used for offsets, so in this case, it is customary to use credits to indicate an increase in asset impairment.
Among the allowance accounts, the intangible assets - accumulated amortization described above is a typical example. A contra account is usually a mirror account that is used to record the situation of its corresponding account in reverse. Therefore, when accounting is carried out, the borrowing and debiting direction of the allowance account will be reversed to achieve the offset of the two accounts.
In summary, the increase in debits accumulated amortization is a condition that indicates an increase in the impairment of an asset. The borrowing and debiting direction of the contradictionary account is opposite to that of its corresponding account and is used for mirror recording. Finance and accounting