Patents are classified under which accounting category?

Patents are categorized as intangible assets because they represent legal rights or privileges granted to an inventor or a business that allows them to exclude others from using their invention for a certain period. Unlike physical assets such as buildings or machinery, intangible assets do not have a physical presence. They contribute to a company’s value and can generate revenue over their useful life, similar to other intangible assets like trademarks and copyrights.

Importantly, while patents may also be categorized under non-current assets—since they are not expected to be converted into cash or consumed within a year—the distinguishing feature is their intangible nature. This is why the classification as intangible assets is the most accurate and aligns with accounting standards that aim to categorize assets based on their properties.

The other classifications—current assets and current liabilities—do not apply to patents. Current assets are expected to be converted to cash or used within one year, which is not the case for patents. Current liabilities, which represent obligations due within a year, are unrelated to the nature of patents. Thus, classifying patents as intangible assets reflects their unique characteristics in accounting practices.