Create a 3 page essay paper that discusses Accounting Research Project.
In simple terms, start up costs can be defined as the costs that a business organization incurs when starting up a new operation and in preparation for the operation. “The definition of start-up activities is based on the nature of the activities and not the time period in which they occur. Start-up activities include activities related to organizing a new entity (commonly referred to as organization costs)” (FASB, 2014a). Once a business has been set up, it can be able to generate revenue to sustain its own expenses. However, prior to this, there has to be expenses which are incurred.
Start up costs can be divided into two categories namely revenue expenditure and capital expenditure. There has been debate regarding how which each of the costs should be treated. Revenue expenditure is the kind of expenses that do not contribute to additional of the business stock. It also does not have any contribution towards the acquisition of assets that can be used by the business for a long period of time (FASB, 2014a). On the other hand, capital expenditure refers to the expenses that the business incurs in acquiring an asset that can be used to generate income for a long period of time. The expenses of capital assets is therefore spread over many time periods as the assets acquired are used for many years.
The costs that Costanza and Son has incurred so far as per the case are revenue expenditure. The company has included legal fees and advertising costs as capital start up costs. These costs do not contribute to the acquisition of any long term asset for the organization. Therefore, these costs should be categorized as revenue costs. They should be accounted for as expenses for the period which they have been incurred. Generally Accepted Accounting Principles (GAAP) requires that start up costs be expensed as they are incurred. This means that the costs should be accounted for during the period in which they have been incurred. This is
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