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PostPosted: Fri Jan 14, 2011 1:32 am 
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Hi, I'm a bookkeeping beginner, I have some questions concerning bookkeeping for a very small family restaurant.

For start up, if the business purchased large amounts of utensils/plate/bowls/supplies etc around $600/800/300/1000 at different times in the first 2 months. Should those be capitalized or expensed?

For small equipments that have been purchased, such as coffee maker at around $250, should I just expense that? How should I justify when to capitalize or expense equipments/high $ value supplies? by the total amount spent?

I have a receipt for the start up renovation of the store, such as painting, some fixtures, installations totaling $3500, how should I record this entry? If the property is rented, should I capitalize that as "leasehold improvements"? or do I need to determine exactly what the services performed were and record it to appropriate accounts?

For gasoline, if the owner drives the car 30% for business use. Should I only record 30% of the gasoline amount paid from every receipts? (If I'm doing separate entries on Simply Accounting for every receipts)

Other things include the design of the business logo and outside store name sign (light box?) Are these leasehold improvements or what should the appropriate account be?

Sorry if my questions are confusing :S It would be great if anyone have any thoughts about these.

Many thanks!


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PostPosted: Sat Jan 15, 2011 1:06 am 
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Hello Jadelung....my contribution is as follows:

1.) General rule as per IRS: anything with a life expectancy of one year or less is safe to expense. I would say; utensils for a restaurant, plates, cups, small tools and so on...are normally expense if the cost is minor and you expect them to last less than a year.

High value supplies/equipment such as: coffee/capuccino machines, Ice makers, etc this should be capitalized because this will last you more than a year (generally) and the cost is a higher.

2.) Leasehold improvements made by a lesse usually becomes property of the lessor. This is an intangible asset to the lesse and as such needs to be treated. A leasehold improvement is capitalized through the life of the lease. However, as per IRS:

"Improvements - The costs of making improvements to a business asset are capital expenses if the improvements add to the value of the asset, appreciably lengthen the time you can use it, or adapt it to a different use. Improvements are generally major expenditures. Some examples are: new electric wiring, a new roof, a new floor, new plumbing, bricking up windows to strengthen a wall, and lighting improvements.

However, you can currently deduct repairs that keep your property in a normal efficient operating condition as a business expense. Treat as repairs amounts paid to replace parts of a machine that only keep it in a normal operating condition.

Restoration plan - Capitalize the cost of reconditioning, improving, or altering your property as part of a general restoration plan to make it suitable for your business. This applies even if some of the work would by itself be classified as repairs.

http://www.irs.gov/publications/p535

i.e., to make entries

dr. Leasehold improvement expense
cr. Leasehold improvement

dr. rent expense
cr. cash

3.) I would recommend using the standard mileage (30%) of usage for car mileage, just make sure you tell them they need to keep track and havee proof of mileage usage for end year tax purposes. If the repairs and maitenance exceed the mileage expense then you can use that but this you can worry about later when tax time comes if you are doing their taxes, if not Im sure they'll have their tax advisor do it for them.
Personally, when I am doing the books for a client I only record business expense amounts to business expense accounts. Anything else goes into owner's draw, if is personal. I would only account for the 30% percent usage to the gas expense account.

4.) The business logo is a promotion/advertising expense. However, the light box is attached to the property, in most cities different businesses have different regulations for promotional postings and signs. If this is something the owner can take witht them if they ever decide to move it would be an expense, but more likely is a leasehold improvement, being that most of this signs are left behind for the use of future lesses. The designing and logo is an expense, the box itself and installation would be leasehold improvement.

Hopefully this helps you :lol:


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PostPosted: Sun Jan 16, 2011 5:22 am 
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Joined: Fri Sep 23, 2005 4:43 am
Posts: 1293
Location: Wichita Falls, Texas
Quote:
Hi, I'm a bookkeeping beginner, I have some questions concerning bookkeeping for a very small family restaurant.

For start up, if the business purchased large amounts of utensils/plate/bowls/supplies etc around $600/800/300/1000 at different times in the first 2 months. Should those be capitalized or expensed?

For small equipments that have been purchased, such as coffee maker at around $250, should I just expense that? How should I justify when to capitalize or expense equipments/high $ value supplies? by the total amount spent?

I have a receipt for the start up renovation of the store, such as painting, some fixtures, installations totaling $3500, how should I record this entry? If the property is rented, should I capitalize that as "leasehold improvements"? or do I need to determine exactly what the services performed were and record it to appropriate accounts?

For gasoline, if the owner drives the car 30% for business use. Should I only record 30% of the gasoline amount paid from every receipts? (If I'm doing separate entries on Simply Accounting for every receipts)

Other things include the design of the business logo and outside store name sign (light box?) Are these leasehold improvements or what should the appropriate account be?

Concerning start up expenses, those are defined as "Start-up expenditures are amounts that would have been deductible as trade or business expenses, had they not been paid or incurred before business began, including amounts paid or incurred in connection with (1) investigating the creation or acquisition of an active trade or business, (2) creating an active trade or business, or (3) any activity engaged in for profit and for the production of income before the day on which
the active trade or business begins, in anticipation of such activity becoming an active trade or business."

For tax years beginning in 2010, a tax payer can elect to deduct up to $10,000 of start up expenses. However, the $10,000 amount is reduced (but not below zero) by the amount by which the cumulative cost of start-up expenditures exceeds $60,000. Start-up expenditures that are not deductible in the year in which the active trade or business begins are, at the taxpayer's election, amortized over a 15-year period beginning with the month the active trade or business begins.

Fixed assets are not start up expenses, but the depreciation of fixed assets can be a start up expense if the asset is placed in service prior to the business opening up for business and depreciation occurs prior to being open for business. So, if the plates, utensils, bowls and supplies are considered expenses (have a useful life of one year or less) and not assets, then if they were purchased prior to the business opening for business, they are start up expenses. You can choose to deduct up to $10,000 of such expenses in the year the business begins (assuming it is 2010 or 2011) or amortize their cost over 15 years. If you consider these items to have a useful life of over one year, then they are assets. If that is the case, the aggregate amount is too large to expense, in my opinion. You may choose to apply the section 179 deduction to them in order to be able to deduct all or a portion of their cost in 2010 or you may choose to apply 50% bonus depreciation, available in 2010, or 100% in 2011.

http://www.jct.gov/publications.html?fu ... wn&id=3707 (Start up expenses, 100% bonus depreciation, and section 179)

The coffee maker can also be deducted under Section 179. Generally businesses set a dollar limit of $100 to $500 for an expense/capitalize threshold for item expenditures having a life longer than a year. If the item's life is less than a year then you're safe expensing it. But, if you purchase several items at the same time or within close proximity, such as a meat slicer, blender, coffee maker, etc. all of which cost on average of $250 to $500, then I would capitalize them all and either choose to apply the section 179 to them or depreciate them. For financial statement purposes (not tax purposes) expensing or deducting an aggregate amount of assets (having a life longer than a year) which is material or significant to your annual revenues will distort your true operating performance and may give you a false picture of your real net income and how well you are or are not doing. For tax purposes, as long as you follow the guidelines, the government could care less. For larger businesses, cash basis income tax accounting will not give a good picture of the true health and true operating results and financial position of the business. That's why such basis of accounting is not recognized as being in conformance with generally accepted accounting principles (GAAP) and why such basis is not acceptable for publicly held and traded companies under the authority of the Securities and Exchange Commission.

Qualified leasehold improvements placed in service in 2010 or 2011, as defined in IRS Pub. 946 How to Depreciate Property, page 25, 26, are capitalized and amortized over 15 years. (Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 extended this benefit through 2011. See pages 114-116 of the Act in link below. There is also qualified restaurant property subject to the same amortization period.) Under GAAP, leasehold improvements are amortized over the shorter of their useful lives or the lease period, but for tax purposes, I find no such support for amortizing them. If the leasehold improvements are not qualified, then they are to be amortized over their expected useful life in accordance with MACRS. That could be as long as 39 years. At the end of the lease, assuming the improvements remain attached to the previously leased property, they will be abandoned. At that point, assuming there is no sale of such improvements to the lessor or a new lessee, the difference between cost and accumulated amortization will be a deductible loss. I see leasehold improvements as being permanent improvements to the interior of a building, such as carpeting, ceiling fans, new lighting, etc. But fixtures which you can take with you once the lease is over, such as furniture, stand alone lamps, book shelves and cases, etc., I would not classify as leasehold improvements but purchases of furniture and fixtures subject to their respective useful lives under IRS depreciation rules. You may need to consult a restaurant tax experienced CPA on this one.

http://www.jct.gov/publications.html?fu ... wn&id=3716 Open with browser or download.

For Vehicles, the IRS gives you the option of using actual expenses or mileage. If used for both business and personal purposes, you MUST use mileage to determine your business expenses. If you use actual expenses (not advised, mileage will generally provide you with more deductions) you have to divide your business mileage by the total mileage (business plus personal) to give you a percentage to multiply your actual expenses (gas, repairs, ins. etc.) by to determine your business deduction. If the taxpayer does not keep a log of some type to record, at or near the time of use, his business use (purpose, beginning and ending mileage, who he met with, business location he traveled to), if he gets audited the IRS is very likely going to deny any business deduction whatsoever. See Chapter 5, Listed Property, of Pub 946, specifically pages 62 and 70, but the entire section on vehicles would be a good idea to read. CAUTION: commuting to and from work is NOT business mileage, but personal.

http://www.irs.gov/pub/irs-pdf/p946.pdf

A designed business logo is technically a trademark, which is amortizeable over 15 years for tax purposes. (See Section 197 Intangibles, page 27, 28, pub 535 below.) What was the cost, around $500 or less? What's the IRS going to do if you expense it? If they audit you, disallow $500 which might result in added tax of $125? Big whup. And the chances they will audit you are minimal if you keep your nose clean. I'll leave that one up to you.

The light sign, assuming it is affixed to the building somehow, I would term a leasehold improvement subject to MACRS. I doubt it qualifies as a qualified leasehold improvement since it is not "interior" to the building. What was the cost on it? All I can find is office furniture and fixtures or no class life, in which case it would be 7 years. But I'd use the ADS system since this is a leasehold improvement, and use 10 years. Or consult with the CPA on this one also. Actually, I'd just call the IRS. Save some bucks.


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 Post subject: Monily Bookkeeping
PostPosted: Mon Nov 13, 2017 7:01 am 
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Joined: Wed Oct 04, 2017 11:55 am
Posts: 477
Monily started as a simple bookkeeping processing organization. However, in time, it acquired professional expertise and expanded business operations bringing more effective talents onboard.
Organize your finance books


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