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ACCA Applied Knowledge · Financial Accounting · Intangible non-current assets and amortisation

A company records the annual amortisation of a purchased software licence. Which double entry is correct?

Debit amortisation expense and credit accumulated amortisation. The charge reduces profit and reduces the carrying amount of the intangible asset, and no cash moves, so cash is not involved.

  1. ADebit amortisation expense, credit accumulated amortisationCorrect
  2. BDebit accumulated amortisation, credit amortisation expense
  3. CDebit intangible asset cost, credit amortisation expense
  4. DDebit amortisation expense, credit cash

Explanation

Amortisation is a non-cash expense charged to profit or loss and accumulated against the asset. So debit the expense and credit accumulated amortisation. Crediting cash is wrong because no cash is paid, and reversing the entries would increase profit and reduce accumulated amortisation.

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