Accounting Theories: Organizational costs vs start up costs
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Read the Wendell Systems, Inc case (Case C10-12 in the text). Prepare a 350-700 word paper answering the questions at the end of the case. In addition to answering the questions, compare and contrast capitalization and expensing.
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Solution Summary
The solution discusses differences in organizational costs and start up costs including information about how tax law relates to accounting theory.
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1. The distinction between organizational costs and startup costs are that organizational costs are those which relate to setting up the entity before beginning business. Startup costs are costs that would normally be operating costs except that they are incurred prior to the time when revenue would be earned. Legal and accounting fees for incorporation are organizational. Newspaper advertising and market research are startup costs.
2. In the absence of other guidance, it is acceptable to use tax law as a basis for amortizing ...
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