Company Start Up Bookkeeping Question

by Maria
(San Diego)

Company Start Up

Company Start Up

1. Does this also apply for a single member LLC?


2. Let’s say the official start day of my business is March 2009 but I bought expense (start up cost) in December 2008 a prior year can you still deduct it since it was in 2008 and not in 2009?

3. Last question I know the 5,000.00 rule but how would a bookkeeper journal entry that so that the cpa or tax person can take that sec 125 deduction?

Like normally I would debit the expense and credit cash but that’s when the business has started what happens if I have 300.00 in office supplies for start up costs? How would I journal entry that then.

I would really appreciate your help I am a bookkeeper trying to get more knowledge and I would like to understand this better. Thank you.

Comments for Company Start Up Bookkeeping Question

Average Rating starstarstarstarstar

Click here to add your own comments

Jun 08, 2018
Rating
starstarstarstarstar 		Company Starting Up
by: Stephanie

Thank you for your company start up bookkeeping questions.

1) Yes

2) Yes - keepin it simple! :)

3) You can simply credit cash and debit Start-Up Costs as an Expense account, and your CPA can expense it.

Or, you can credit cash and debit Start-up Costs as an Asset account, and your CPA can take a section 179 deduction.

You can only take up to $5,000 as an expense for startup costs, anything over that would need to be amortized as an asset.

Typically assets under $500 are expensed, no need to depreciate.

I hope that helps. Let me/us know if you have any more questions.
Apr 09, 2015
Rating
starstarstarstarstar 		Good Company Start Up Reading
by: Michael C. Quinn

This is great! I was looking for exactly the same thing about Company Start Ups all day yesterday.
Jun 05, 2009
Rating
starstarstarstarstar 		Thank You For Your Help With My Bookkeeping Questions
by: Maria

Hello, Thank you for help with my questions. I know you are probably way busy but if you can help me answers these questions I would be so grateful. I am directing friends to your website. Thank you again..

This is for a Sole Proprietorship.

1. I understand that it is my choice to use the expense method or asset method for my start up costs. But can I used both at the same time( meaning expense the start up expense such as business cards adverting etc.. and capitalize the assets such as computers and furniture.)

2. Can I pay myself back and Expense or capitalize together for start up costs? What I mean by that is if I buy a computer for 2,000.00 before the business starts do I

a. Debit the asset- computes and credit loan payable-to myself( liability account) or

b. Debit the asset account and credit owners equity?

Either way there is going to be a positive 2,000.00 in the asset account, so my question is can I debit either loan payable or owners equity for the 2,000.00 and credit the cash when my business has the money to pay me back?

3. And when I do that am I still allowed to depreciate the asset or is that double dipping?

Is the process the same for an expense, can I get paid back and deduct the expense on my schedule C?

4. If I decided to make my start up costs an asset account should I make an asset account called startup costs or should I make individual asset accounts for example computers, furniture etc..

Since you can use 5,000 of start up costs if you take that election does that mean your asset accounts for the 2,000.00 computer will go to 0 at the end of the year? Since you took the full deprecation?

What would you personally do if you had only 3,000.00 in start up costs, two computers the rest office supplies adverting etc.. would you expense them all or capitalizing them?

If you expense them would you put them in individual expense accounts like advertising, office supplies, or one expense account called start up expense?

Last question?.. would the 5,000.00 in startup costs be treated separate from the regular business expense incurred after the business open. ( for tax purposes)

Thank you.

Maria

Click here to add your own comments

Join in and write your own page! It's easy to do. How? Simply click here to return to Bookkeeping Questions and Answers.

New business - E&O needed?

I'm setting up my bookkeeping business in Ontario, should I get Errors and Omissions Insurance coverage?

Comments for New business - E&O needed?

Average Rating starstarstarstarstar

Click here to add your own comments

Oct 10, 2023
Rating
starstarstarstarstar 		Errors and Omissions Insurance
by: BB

Absolutely, considering Errors and Omissions (E&O) Insurance when setting up your bookkeeping business in Ontario is a wise move. Let's dive into why this is essential for you.

Why E&O Insurance?

Risk Mitigation
In any service-based business, especially one dealing with financial records, mistakes can happen. E&O Insurance helps protect you against the financial repercussions of errors or omissions you might make in your professional services.

Credibility
Having E&O Insurance not only protects you but also adds credibility to your business. Clients are more likely to trust you with their sensitive financial information when they know there's a safety net in place.

Legal Requirements
While E&O insurance might not be legally mandated for bookkeepers in Ontario, some clients might require you to have it before engaging your services. Therefore, it can also serve as a business enabler.

Pros of E&O Insurance

1. **Financial Security**: In the event of a lawsuit, the costs can add up quickly. E&O insurance can cover these expenses, ensuring that a legal battle doesn't become a financial disaster.

2. **Client Confidence**: Knowing that you're insured will also give your clients peace of mind, which is invaluable for maintaining long-term business relationships.

3. **Focus on Business**: With the security of insurance, you can focus more on providing top-notch services rather than worrying about potential risks.

Cons of E&O Insurance

1. **Premium Costs**: Insurance isn't free. You'll have to budget for the premiums.

2. **Not a Blanket Cover**: E&O doesn't cover intentional misconduct. Make sure to read the fine print to know what's included and what's not.

What I've Found to be True

From my experience, the pros of having E&O Insurance far outweigh the cons. It's all about assessing the risks involved in your business and deciding what level of coverage you need.

Next Steps

Consult with an insurance advisor to tailor a package that fits the needs and risks associated with your bookkeeping business. Given the uncertain economy and potential for mistakes, having E&O insurance can give you the peace of mind to operate confidently.

So, will you be looking into E&O Insurance for your new venture? Trust me, it's a decision you won't regret.

Click here to add your own comments

Join in and write your own page! It's easy to do. How? Simply click here to return to Bookkeeping Questions and Answers.

Start Up Costs

by Pat

In a new business when purchases are made for items to use as display (racks, shelves, etc) should this expense get recorded in balance sheet as startup cost or on P and L side as expense?

Comments for Start Up Costs

Average Rating starstarstarstarstar

Click here to add your own comments

Oct 10, 2023
Rating
starstarstarstarstar 		Financial Startup Costs
by: BB

Your options are generally to record them either as startup costs on your balance sheet or as expenses on your Profit and Loss (P&L) statement. Let's explore each approach.

Startup Costs on the Balance Sheet

Pros:
Long-term View: Startup costs are often considered capital expenditures and could be depreciated over time. This gives a more accurate long-term view of the business's finances.

Tax Benefits: Depending on jurisdiction and type of cost, you might be able to write off these costs over a period of years through depreciation, providing some tax benefits.

Cons:
Complexity: Requires a more intricate understanding of accounting rules and regulations for amortization and depreciation.

Profitability Picture: Your business may appear less profitable initially, as these startup costs are spread out over a longer period.

Expenses on the P&L Statement

Pros:
Simplicity: Recording these costs as expenses is straightforward and doesn't require complicated depreciation calculations.

Immediate Tax Write-off: If treated as a regular business expense, you could potentially write off the full cost in the year it occurred, thus lowering your taxable income for that year.

Cons:
Short-term Profit Hit: Expensing these items immediately can make your business appear less profitable in the short term, which might be a concern for potential investors or lenders.

Missed Long-term Benefits: By expensing the items, you might miss out on spreading the costs over their useful life, which can offer a more accurate representation of long-term profitability.

The choice between these two often depends on the financial strategy you've adopted for your business. I've generally found that if these items have a useful life of more than a year and are a significant investment, capitalizing them as startup costs makes more sense. This aligns the expense with the benefit you'll get from the item over time.

Before making a decision, it's also a good idea to consult with a tax advisor or accountant familiar with the regulations in your jurisdiction. Given that you're in the startup phase and looking to save money, getting this right can set a good precedent for your financial tracking.

So, which approach resonates with you more?

Click here to add your own comments

Join in and write your own page! It's easy to do. How? Simply click here to return to Bookkeeping Questions and Answers.

Starter Bookkeeper

If I want to get into bookkeeping and I do not really know much about the subject where is the best place for me to start?

Comments for Starter Bookkeeper

Average Rating starstarstarstarstar

Click here to add your own comments

Oct 10, 2023
Rating
starstarstarstarstar 		Bookkeeping Continuous Learning
by: BB

Great to hear you're interested in diving into the world of bookkeeping! Starting a new career path can feel overwhelming, but don't worry. Let me share some steps to guide you on where to start, based on what I've found to be effective.

Basic Understanding

Firstly, get a general understanding of what bookkeeping entails. Websites, YouTube channels, and even books can give you a broad idea of what the job involves.

Formal Education
1. **Community College Courses**: Many community colleges offer bookkeeping certificates.
2. **Online Courses**: Platforms like Udemy and Coursera offer courses on bookkeeping basics.

Informal Education
1. **Blogs and Articles**: Websites like www.bookkeeping-basics.net provide a wealth of information.
2. **Webinars**: Look out for free or affordable webinars that can introduce you to the world of bookkeeping.

Practical Experience
1. **Software**: Familiarize yourself with popular bookkeeping software like QuickBooks or Xero. Many offer free trials.
2. **Internship or Part-Time Job**: If possible, work as an intern or assistant bookkeeper to gain hands-on experience.

Networking

1. **Join Associations**: Consider joining professional bookkeeping or accounting associations to network and learn.
2. **Social Media**: Follow industry experts on platforms like LinkedIn and Twitter to stay updated.

Certification

Once you have a good grasp, you might want to get certified. For example, you can become an Intuit QuickBooks Certified User or even an Enrolled Agent for higher recognition.

Continuous Learning

Remember, the world of bookkeeping is ever-changing with tax laws, software updates, and best practices. Keep yourself updated with continuous learning.

Consult a Mentor

If you can, find a mentor who can guide you through the early stages of your bookkeeping journey. Their insights can be invaluable.

What To Do Next?

Now that you have an outline, the next step is to take action. Perhaps sign up for a beginner's course or buy a bookkeeping book? I assure you, if you're committed, you'll find that bookkeeping is not only essential but can be incredibly rewarding.

Getting into bookkeeping can be a gateway to a secure and fulfilling career, especially in today's uncertain economy where businesses always need financial guidance.

So, are you ready to take that first step into the world of bookkeeping?

Click here to add your own comments

Join in and write your own page! It's easy to do. How? Simply click here to return to Bookkeeping Questions and Answers.

Starting a Set of Books

by Glenda
(Canada)

Hi, I am wondering what information you need to start a set of books for an existing company that has recently incorporated from a sole proprietorship.

Is the balance in the bank account recorded as retained earnings?

Hi Glenda,

Thank you for your question.

In order to start a set of books for an existing company that has recently incorporated from a sole proprietorship, you would need the balance sheet from the last date of business for the sole proprietorship.

Then you would do one big journal entry to record the ending balances of the sole proprietorship as the beginning balances of the corporation. All the balances are typically journal entried through the Opening Balance Equity account.

Click here to post comments

Join in and write your own page! It's easy to do. How? Simply click here to return to Bookkeeping Questions and Answers.


Please subscribe to my monthly newsletter, Bookkeeping Basics E-zine. It tells you every month about the new information that I have added, including some great tips and advice from myself and other Bookkeeping Basics readers.

Enter Your E-mail Address
Enter Your First Name (optional)
Then

Don't worry — your e-mail address is totally secure.
I promise to use it only to send you Bookkeeping Basics E-Zine.

Like Bookkeeping-Basics.net?