I just started my own business (April 2010). I bought some furniture/equipment/supplies (so that I could transfer them to my business at start-up). These purchases were made between September 2009 and March 2010 and I’d like to transfer the assets to my business. How should I go about it? Also, since I purchased them recently, can I transfer the full cost of these assets to my business?
The assets you need for your business that you acquired before the start-up and the costs you incurred personally before the start-up can indeed be transferred as assets and expenses to your new business, provided the expenses were incurred to run your business.
Since these assets and expenses were paid by you personally, in reality you advanced a certain amount of money to your business and your business incurred a debt to you.
To record this transaction, you must first create certain items (accounts) in your accounting system:
In the Balance Sheet, under Fixed (or Capital) Assets:
- Furniture
- Accumulated Depreciation – Furniture
- Equipment
- Accumulated Depreciation – Equipment
In the Balance Sheet, under Long-term Liabilities:
In the Income Statement, under Administrative Expenses:
- Office Supplies
- Depreciation Expense
Your journal entry will be as follows (the figures are just examples):
| Debit: Furniture |
1,000.00 |
| Debit: Equipment |
2,500.00 |
| Debit: Office Supplies |
600.00 |
| Credit: Advance from Shareholder |
4,100.00 |
Thus the business’s financial statements will show that it recognizes that it has a debt to you for all the money you spent personally before start-up.
I hope this answers your first question and anticipates the answer to the second. Since private companies (not listed on the stock exchange) do not have to comply with International Financial Reporting Standards (IFRS), their accounting is based on the original value. Therefore, to be able to transfer the full amount of something you bought to the assets of your business, the fact that it was purchased recently is not important. What is important is that you have an invoice for the asset acquired and that you record the full amount (before taxes, obviously) in the assets of the business.
Which brings us to the definition of what can be considered an asset. I recommend that only amounts over $250.00 be recorded as furniture or equipment. Amounts below that level should be considered office or production supplies.
The asset and expense accounts created above include a Depreciation Expense item and two Accumulated Depreciation items. These will be used by your accountant at the end of the fiscal year to record the annual depreciation expense. Since these accounts will have to be created eventually, I recommend that you create them at the same time as the other accounts.