Accounting for startup costs

Startup activities are those activities required to organize a new business, introduce a new product, and so forth. Essentially, the accounting for startup activities is to expense them as incurred. While the guidance is simple enough, the key issue is not to assume that other costs similar to start-up costs should be treated in the same way.

Thus, you must review other elements of GAAP to find the proper treatment of other costs, such as customer acquisition costs, loan origination costs, research and development costs, and the cost of internally developed assets.

Example of Accounting for Startup Costs

Armadillo Industries is opening a new subsidiary in Argentina that will produce and sell its police body armor products within South America. Armadillo incurs the following expenses, all of which are subject to startup cost treatment:

  • Accounting and legal startup costs
  • Employee salary-related costs
  • Employee training
  • Feasibility studies
  • Recruiting costs
  • Travel costs

All of these costs should be charged to expense as incurred.