Accounting for startup costs
/What is the Accounting for Startup Costs?
Startup activities are those actions required to organize a new business or introduce a new product. 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. In some cases, these other costs should be capitalized over a number of years.
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Example of 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.