Preoperative expenses

GM Corporate - Accounts

Hi 

 

I would like to know

IF PREOPERATIVE EXPENSES ARE INCURRED BEFORE BUSINESS IS COMMENCED THAT CAN BE CAPITALISED.

BUT WHAT WOULD BE ENTRIES FOR  EXPENSES INCURRED FOR CREATION OF ASSET AND ACTUAL OPERATING EXPENSES REVENUE IN NATURE. HOW TO KEEP A TRACK IF THIS ALL EXPENSES ALL MAINTANED BY 3 PARTNERS BY PAYMENT OF CASH AND PERSONNEL BANK ACCOUNTS.

I WANT TO KNOW WHICH ACCOUNT SHOULD BE CREDITED ? IF NOT THE EXPENSES PAYABLE ACCOUNT ?

 

 
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CA Final


Pre operative Expenses are to be capitalised if it relates to fixed asset and should be charged to the Profit and loss account if it is off revenue in nature. 

In my opinion, Accounting entries for pre-operative expenses when business is to commence

(I) Where it is for fixed asset,

1.Pre Operative Expenses Account (Asset) Dr

                   To Partners Current (Due Since they have paid it, before the commencement of business)

2. Partners Current Account Dr

                    To Cash or Bank of the Firm/ Company

(II) Where it is revenue in nature

1. Pre operative Expenses Account (under Miscellaneous Exp) Dr.

                    To Partners Current Account(Due created for paying since it is incurred 

2. Profit and loss Account                  Dr.

                     To Pre Operative Expenses Account(write off in the year of commencing the business)

3. Partners Current Account                Dr.

                      To Bank Account of the company 

Regards,

Sriram.V

 

 

 

 
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Managing Director


In my opinion if the pre operative expenditure is met 1. on account of fixed asset. Entries WIP A/c... Dr To.. Cash/ Bank/ creditors/ supplier A/c on the day of capitalization Asset ......Dr To WIP A/c 2. on account of revenue expenditure Pre operative Exp/ Misc Exp ( Misc Exp) under Assets..... Dr To Cash/ Bank/ Creditor/ Supplier A/c at year end on proportionate basis P&L A/c.... Dr To Pre operative Exp A/c Regards Praveen Kumar
 
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