As i say elsewhere planning is not accounting you

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Unformatted text preview: publisher sells a book to a store for resale. • Expenses (usually called operating expenses): office rent, administrative and marketing and development payroll, telephone bills, Internet access, all those things a business pays for but doesn’t resell. Taxes and interest are also expenses. • Profits (also called Income): Sales minus cost of sales minus expenses. CHAPTER 14: ABOUT BUSINESS NUMBERS 14.3 Assets vs. Expenses Many people can be confused by the accounting distinction between expenses and assets. For example, they would like to record research and development as assets instead of expenses, because those expenses create intellectual property. However, standard accounting and taxation law are both strict on the distinction: • Expenses are deductible against income, so they reduce taxable income, but expenses cannot be depreciated, ever. • Assets are not deductible against income, but assets whose value declines over time (usually long-term assets) can be depreciated. Some people are also confused by the specific definition of start-up expenses, start-up assets, and start-up financing. They would prefer to have a broader, more generic definition that includes, say, expenses incurred during the first year, or the first few months, of the plan. Unfortunately, this would also lead to double counting of expenses and non-standard financial statements. All the expenses incurred during the first year have to appear in the Profit and Loss statement of the first year, and all expenses incurred before that have to appear as start-up expenses. This treatment is the only way to correctly deal with the tax implications and the proper assigning of expenses to the time periods in which they belong. Tax authorities and accounting standards are clear on this. What a company spends to acquire assets is not deductible against income. For example, money spent on inventory is not deductible as an expense at the point when you buy it. Only when the inventory is sold, and therefore...
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This note was uploaded on 01/26/2014 for the course BUINESS 102 taught by Professor Unknown during the Winter '09 term at University of Phoenix.

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