What is a preliminary expense and where it is used in Final Account?

Before incorporation and commencement of business, company and the promoters of the company may incurred so many types of expenses like statuary fees and company logo designing, in some cases rent for the office premises during the time of incorporation not after incorporation etc... These are all comes under preliminary expenses .in simple words preliminary expenses are the expenses that spent by the promoters before the incorporation of company

THEESE KIND OF EXPENSES ARE INCURRED BEFORE BUSINESS OPERATION START UP SUCH AS MERKETING FEE, REGISTERATION PROCEES AND ALL OTHER LEGAL DOCUMENTATION PROCESS EXPENSES. THESE EXPENSES ARE ASSET IN NATURE AND CAN BE AMORTIZED ACCORDINGLY

Preliminary expense can be say as start up cost of business,  and it is incorporated in admin expenses.

The benefit of the preliminary expenses is long-term so it is treated as intangible asset and shown in Balance sheet under Missilinous assets. These expenses will be written off in5 equal year installment in profit and loss A/c. you can also transfer whole amount in single year but for income tax purpose1/5 of the amount will consider.

Accounting Entries:

1. Preliminary Expense - Dr (Current Asset)

                             To Cash\\Bank

2. Preliminary Expenses Written Off - Dr (Indirect Expenses)

                          To Preliminary Expenses

Preliminary expenses are those expenses which are incurred in business before incorporation and commencement of business, like statuary fees ,company logo, survey report, project report etc are called preliminary expenses.

Accounting treatment of preliminary expenses:

 Preliminary expenses gives long term benefit so it is treated as intangible assets and shown in balance sheet under miscellaneous assets:-

1.When preliminary expenses are incurred /paid:-

Preliminary expense (Current Assets) A/c Dr.

To Cash/Bank A/c

2.When part of preliminary expenses are considered as indirect expense:-

Preliminary Expenses written off A/c Dr.

To preliminary expenses A/c

3.Charge of preliminary expenses:-

Profit & Loss A/c Dr.

To preliminary expenses A/c