Final answer:
To record patent amortization, a company debits Amortization Expense and credits Accumulated Amortization. This reflects the cost allocation of the patent's value over its useful life.
Step-by-step explanation:
The entry to record the amortization of patents at Potients, Inc., which amortizes its patents over ten years, may include both a debit to Amortization Expense and a credit to Accumulated Amortization. When a company has a patent, it has acquired an exclusive right, granted by the government, to manufacture, use, or sell its invention for a period, typically 20 years. However, in accounting, the cost associated with acquiring a patent is allocated over its useful life, which is the period it is expected to provide economic benefits to the company.
To record such an expense, the journal entry is:
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- Debit: Amortization Expense - Patents
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- Credit: Accumulated Amortization - Patents
The debit to Amortization Expense reflects the cost of using the patent during the accounting period, and the credit to Accumulated Amortization represents the total amount of the patent cost that has been allocated since the patent was put into service.