Would be grateful if someone could provide some advice on entering startup costs for a new business.
I have opened a shop on a three year lease, and have a number of costs (legal fees, signage, shopfitting costs etc) that I would like to spread over the three year term for monthly management account purposes.
Firstly, what nominal code should I use for entering the expenses?
For capital costs, you need to be using the "Capital"/"Fixed Assets" range of account codes, that typically begin with 00. For example, leasehold is code 0011.
(You may need to set up new, more appropriate codes, if the standard ones don't "fit" but keep to the same number range otherwise you could cause errors in your chart of accounts.)
You then charge depreciation each year (or each month) to "spread the cost" of these purchases across their useful life which is done by a journal, as you've said.
The journal would be: debit the depreciation code (in the profit & loss account, typically beginning with 80) with the depreciation amount and credit the depreciation code in the balance sheet (typically beginning with 00 and ending in 1)
eg, if you are depreciating "Office Equipment" code 0030, with an original purchase price of £900, and you are depreciating over 3 years, then the annual depreciation would be: Dr code 8004 £300 Cr code 0031 £300 (If you're doing it monthly, then the monthly journal would be Dr code 8004 £25 Cr code 0031 £25)
Hopefully, the above makes some kind of sense, but if not, do you have an accountant who you can give a quick call to - they can talk you through this process in a matter of minutes. Failing that, if the above is unclear, please feel free to give me a call and I'll happily talk you through it.
