Thats the law in accounting if you have 32000 in

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Unformatted text preview: business for good. You don’t expect to get it back. Borrowing is money loaned to the business — including loans as simple as purchases with credit cards and unpaid bills, called unpaid expenses. Loans can be unpaid expenses, shortterm loans, or long-term loans. You need to invest and borrow enough money to equal the start-up expenses and start-up assets combined. 6.8 HURDLE: THE BOOK ON BUSINESS PLANNING START-UP FUNDING TABLE Start-up numbers aren’t complete until they include plans for funding the start-up requirements, through debt or investment. CHAPTER 6: DESCRIBE YOUR COMPANY 6.9 You can see from the previous example that the total of debt and investment must account for the total funding requirements. The money coming in must equal money going out. That’s a nice match between common sense and accounting principles: you can’t spend it if you don’t have it. Loss at Start-up Because of accounting principles, your loss at start-up will always be exactly equal to your start-up expenses, but in the opposite direction. In the example, the start-up expenses total $18,350, so the loss at start-up should be exactly -$18,350. This is correct accounting. These are expenses taken against future income, and you have no income, so you have a loss. This is normal, since the vast majority of start-up companies start with a loss. The rule of accounting is that assets are equal to capital plus liabilities. That is the same as capital being equal to assets minus liabilities, which is also your company’s net worth. That’s the law in accounting: if you have $32,000 in assets and $350 in liabilities, your capital should be $31,650 (assets less liabilities). If you invested $50,000 in this case but your capital should be only $31,650, then your loss at start-up has to be $18,350. The original $50,000 investment minus the $18,350 loss at start-up gives you the correct number for capital, $31,650. Your loss at start-up will always be equal to start-up expenses. Whether you like the loss at start-up or not, it happens whenever a start-up company has expenses before it star...
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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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