How to Account for Organizational Costs in GAAP

Expenditures are divided into either revenue or capital expenditures. Revenue expenditures, more commonly called expenses, produce benefits for the business in one single time period, while capital expenditures produce benefits in multiple time periods. In contrast with expenses, capital expenditures are recorded as assets so that their values might be deducted across the entire time of their usage in order to represent their continuing benefit to the business. Organization costs are the expenditures needed to start up the business. Some organization costs are recorded as expenses, while others are capitalized in preparation for amortization.

Divide organization costs into expenses and capital expenditures. Capital expenditures are expenditures that produce no tangible asset but instead lasting benefits.

Record expenses in that period in the same manner as any other expense in any other period. For example, if your business spent $1,000 to install equipment, that is $1,000 recorded as an expense for the period and either the creation of a $1,000 liability or the deduction of $1,000 from an asset depending on whether it was paid for with credit or cash.

Capitalize capital expenditures by recording their values as assets. This is done so that these intangible assets can be amortized using the same methods as any other intangible assets once your business starts operating.


About the Author

Alan Li started writing in 2008 and has seen his work published in newsletters written for the Cecil Street Community Centre in Toronto. He is a graduate of the finance program at the University of Toronto with a Bachelor of Commerce and has additional accreditation from the Canadian Securities Institute.