Preliminary expenses

Preliminary expenses
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Methods and techniques

Preliminary expenses are related to creating new company and before starting business operations. Preliminary expenses cannot be put on normal accounts, but they have to be accounted. Therefore, they are accounted as fictitious assets. Such assets are written off as soon as possible, when the company earns first earnings. Preliminary assets can be found on assets side of balance sheet.

In some accounting policies preliminary expenses are accounted in Reserves & Surplus as negative balance and written of gradually. In other policies (old approach) they are shown as Miscellaneous Expenditures.

Example preliminary expenses are:

  • legal costs,
  • professional fees,
  • stamp duty,
  • printing fees.

Profesonal fees[edit]

It is a remuneration for work performed irregularly or once, usually in free professions. It includes[1]:

  1. remuneration transferred to the author or artist of the performer for using the work or performing it through the entities paying the fee,
  2. remuneration paid to authors or performers paid by organizations for the collective management of copyright or related rights,
  3. remuneration for scientific and research and development works, being a part of creative activity, implemented by employees of scientific units and research and development units.

Stamp duty[edit]

Stamp duty is the remuneration for the activities of public administration bodies, taken in individual cases. These activities include performing official activities, issuing certificates, permits and certain documents.

The obligation to pay stamp duty arises as soon as:

  1. submit an application for a certificate or permit,
  2. filing an application or submitting an application for official action,
  3. upon submission of a document to the public administration body, court or body performing tasks in the field of public administration that is not a government or local government administration authority.

Payment methods[2] [3]:

  1. by applying the paper on the stamp paper,
  2. cash in the office,
  3. cashless transfer to the account of the competent office,
  4. by stamping the application with stamp duty stamps.

References[edit]

Footnotes[edit]

  1. Corporate Reorganization & Professional Fees
  2. Journal of Economic Literature Classification Numbers G12, G13, D82
  3. Duty on Shares and its Efect on Share Prices

Author: Magdalena Pawłowska