Do Preliminary expenses constitute marketing expenses?
Do Preliminary expenses constitute marketing expenses?
A company is a person brought to life by the law of the country. And in the process of bringing a company to life, real people invest their time and money. It means the company when it finally comes to existence, is already in debt to these people for that money they spent. These expenses are really extraordinary in nature because these happen only once in the lifetime of a company. Let's discuss these expenses in detail.
Preliminary expenses are those expenses which are incurred by the founders of a company, while founding the company. These expenses are of three types:
Organization Expenses
These are the expenses which are incurred to form the company. The initial forms and stamps, legal papers and documents, fees, cost of Incorporation etc.
Syndication Expenses
These are the expenses incurred for issuing share capitals, and include underwriting commissions and discounts on issues.
Pre-opening Expenses:
These are the expenses which are incurred to bring the company to business. This may include office rent and furnitures, advance salaries and advance payments to suppliers by the founders on the behalf of the company.
Now, to talk about marketing expenses. These include expenses like printing prospectus, advertisement in local newspapers and media. Thus, some expenses are syndication expenses(Prospectus) and some are pre opening (Advertisement) in nature. But they are preliminary expenses nonetheless.
As thus, we show them on the debit side of the balance sheet and amortize each expense for as many years as prescribed by the law.
For more details on accounting treatment of preliminary expenses, click here
