Final answer:
The adjusting entry to record the amortization of an intangible asset includes debiting Amortization Expense and crediting Accumulated Amortization. This reflects the cost allocation of an intangible asset over its useful life and impacts both the balance sheet and income statement.
Step-by-step explanation:
The adjusting entry to record the amortization of a long-term asset that lacks physical substance includes a debit to Amortization Expense and a credit to Accumulated Amortization. This accounting transaction reflects the systematic allocation of the cost of an intangible asset over its useful life. Intangible assets, such as patents, trademarks, and copyright, have a defined period of economic benefit and are subject to amortization in a similar way that tangible assets are depreciated.
For example, if a company has a patent with a 10-year life and the initial cost was $100,000, the annual amortization expense would be $10,000. The journal entry at the end of the first year would be to debit Amortization Expense for $10,000 and credit Accumulated Amortization, or if appropriate, the Patent account directly, for an equal amount. Over time, this process reduces the book value of the intangible asset on the company's balance sheet while the expense is recognized in the income statement, affecting net income.