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General Accounting Discussions: how to treat company formation costs in the chart of accounts

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    • CommentAuthorcharan
    • CommentTimeApr 6th 2007 edited
     
    If the formations costs ie. company registration charges are treated as capital costs rather than a normal business expense. What accounts would this affect in the financial statement and the chart of accounts. would this effect equity or assets?
    • CommentAuthorcajay
    • CommentTimeApr 7th 2007
     
    Generally, organization costs are considered an intangible asset that benefits the corporation, and the costs can be amortized over their estimated useful life. Because organization costs usually are in small amounts, the materiality principle supports a short amortization period.
    To record payment of organization costs:
    Dr. Organization costs 10,000
    Cr. Cash 10,000
    Thankful People: charan
    • CommentAuthorAbusamak
    • CommentTimeApr 7th 2007
     
    really it depends on the law of your country.
    in my country we shall amortize over 5 years.
    if u have 100,000$ organizing expenses we must treat it as a prepaid expense and appear in other assets and amortize over its useful life.
    e.g: 100000/5= 20000
    Dr.organizing expense 20000
    Cr. prepaid organizing expense 20000
    Thankful People: charan

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