Goodwill

Goodwill is an intangible asset that represents the value of a business’s reputation, customer loyalty, and brand recognition.

Explanation:
Goodwill arises when a company is acquired for more than the fair value of its net assets. It includes elements like brand value, customer base, and employee relations.
Goodwill is recorded only during acquisitions, not created internally.

Example:
If Company A buys Company B for $1 million, but Company B’s net assets are worth $800,000, the $200,000 extra is recorded as goodwill.

Importance:
Goodwill reflects the non-physical assets that contribute to a business’s success and can impact valuations and future profitability.

Common Confusion:
Goodwill is not the same as general business reputation; it’s an accounting term recorded during acquisitions.