Business Startup Costs - How to record professional services?

USA Discussion in 'General Accountancy Discussion' started by jdlev, Feb 12, 2018.

  1. jdlev


    Feb 12, 2018
    Likes Received:
    Hi Guys,

    I'm doing some financial projections for a new company. I'm not sure how I should enter business setup costs for professional services rendered like for legal fees, electrician fees, etc? For instance, let's say I hire a consultant to help setup the company - how would I enter that into the books (which account should I enter it into)?

    Also, I'm doing 3 years worth of pro forms, so I'm not sure how the startup costs would come into play? Since I'm doing 3 years worth financial statements, I assume I'd need 4 balance statements:
    *Opening Day Balance Sheet
    *Opening Day + 1 Year
    *Opening Day + 2 Years
    *Opening Day + 3 Years

    Here's how I'm handling the startup costs. Please let me know if I'm mishandling anything:
    Asset - Cash: $1,000 Equity - Owner Capital Account: $1,000
    Asset - Cash: $1,000 Liability - Loan Payable: $1,000
    Asset - Equipment: $100 (5yr life) Asset - Cash: $100
    $1,000 + $1,000 + $100 = $1,000 + $1,000 + $100

    Year 1 Income Statement
    Revenues: $500
    Expenses: $320 (should the equipment purchased during startup be included here?)
    Loan Interest Expense: $10
    Depreciation Expense: $20
    Total Expenses: $350
    Net Income: $150

    Year 1 Balance Sheet

    Equipment - $100
    Cash - $2000 + $500 (Revenues) - $320 (Expenses) - $10 (Loan Interest) = $2170
    Accumulated Depreciation - ($20)
    Total Assets: $2250

    Loan Payable - $910


    Owner Starting Capital Account - $1,000
    Capital Distribution (eq. Net Income) - $250
    Owner Equity Account (add paid off loan principal?) - $90
    Ending Owner Equity + Capital Account = $1340

    Total Liabilities + Equity: $2250

    One big question I had is what happens as the loan is amortized? Where does the equity go. Let's say end of year, the company has repaid $90 worth of principal. Would that go into the Owner Equity Account?
    jdlev, Feb 12, 2018
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  2. jdlev

    Steve-LevelUp VIP Member

    Jul 18, 2016
    Likes Received:
    It would be easier if you laid these out in a standard double entry style, however, I noticed that you are reporting Net Income of $150, and including net Income of $250 in the Equity.

    Also, why would $90 be paid by the owners equity. Are the owners putting in their own money to pay off the loan, or (more likley) it the loan paid from cash, in which case Cash would be the offsetting entry.
    Steve-LevelUp, Feb 15, 2018
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