The difference between tangible and intangible
Tangible and intangible are both an overused yet very important terms in accounting. The term tangible denotes the assets which have a physical existence whereas intangible assets cannot be seen, just felt. For instance, you can see water and drink it. It has a physical existence, thus it is tangible. Whereas air is an intangible element as it doesn’t have a physical attribute. In accounting, however the real significance of these both terms lies in accounting while assessing and ascertaining the real worth of a company.
Cash, property, furniture and infrastructure are some of the tangible assets of a company whereas the reputation of the company in market or among consumers, its logo, graphical representation, trademarks and intellectual rights falls under the category of intangible assets. The other difference between the terms is the way in which the assets are calculated. For instance, the value of tangible assets such as machinery and furniture wears off by the time whereas intangible assets pay back. The rule, however doesn’t apply on the land or a building owned by company if its value increases over the time. The value of tangible assets shows in the balance sheet of a company.
It may be clear by now that intangible assets are of far more importance to a company rather than tangible asset. For instance, a company has earned its reputation and goodwill in a market after being there for 15 years in market which allows a competitive edge to the company over others. For this span of 15 years, the company has won the hearts of many loyal customers and formed an image of its own. A building or manufacturing equipment isn’t much of a value in comparison to that. The same stands true for a patent that company has achieved for 15 years which restricts other companies from manufacturing the same product for the said time.
However, over the period of a time the value of tangible assets decreases steadily but in the case of intangible assets such as patent, it is same for the given time and hits the ground once it completes the time period.