 Hello and welcome to the session in which we would look at startup cost as well as initial operating loss. We will define them and see how we treat them for accounting purposes and very briefly about tax purposes. However, this is not a tax course. This is intermediate accounting. So if you are looking to learn about these topics from a tax perspective, please go to farhatlectures.com. So what are startup costs? Startup costs are one-time activities to start a new operation. Activities mean some expenditure that you are incurring. What could be some examples of this? Well, it could be you're opening a new plant. You're introducing a new product or service. You might be expending into a new territory. What happened when these events occur? You might incur travel cost, employee salaries, certain accounting costs, training costs, computer system, and other costs that are related to this one-time activity. So what do we have to do with these costs? Well, we're going to find out shortly. In addition to the startup cost, sometimes when you're operating in a new territory, you might incur what's called organizational costs such as legal costs, governmental fees to incorporate, so on and so forth. So why are you incurring all these costs? Whether it's the startup cost, the initial cost, or the organizational cost? Well, the reason is simple to generate more revenues. Now, is this future revenue guaranteed? And the answer is definitely not. You don't know whether these costs, whether these operating expenditure will provide future benefits or not. Obviously, you want them to provide future benefit, but this may or may not be true. So as a result, an accounting as conservatism would apply to us, we will expense them. Simply put, we will expense them. And specifically, I'm talking from a gap perspective. Now, bear in mind, if you purchase tangible assets such as trucks, vehicles, building, those are still capitalized, although they might be part of the startup cost. Nevertheless, they are accounted for separately. Now, for tax purposes, the organizational cost, and this is why I kept it separately as part of the startup cost, you might be able to expense $5,000 and amortize the remaining with certain limitation because for tax purposes, they don't want you to take the expenses. They want you to take less expenses. For tax purposes, you are happy to take the expenses. And this is something you want to start to think about because down the road, we're going to be learning about deferred income taxes, which the difference between how you treat a transaction for financial accounting and for tax. And this is the main reason why I wanted to talk about these because when it comes to organizational cost, so if we're looking at organizational cost for tax purposes, it's going to be different for gap and tax. So simply put, for gap, you are going to expense. For tax, you are limited to $5,000. Then the rest, you will amortize. It means you will expense in future years. So that's the difference between the two. That's going to create a difference in taxable income and financial income and operating income. How about initial operating losses? What are initial operating loss? It's when you start the business. At the beginning, you're going to be incurring losses. Early on, the companies don't make a profit. They're just, they are testing the market. They might have to sell things at a discount to gain market share. They might have high advertising cost, high expansion cost. So they're going to be incurring a loss. What do we have to do with those losses? Again, for gap, you're going to expense them. For tax, you will see later, those operating losses, they will create for us future deductions. And those future deductions might create what's called a deferred tax asset. And we'll talk about this in a separate recording. But the point is startup cost, initial operating cost, organizational cost, for gap purposes, they are expensed. For tax purposes, they are treated differently. Well, we'll talk about those later on. At the end of this recording, I would like to let you know that whether you are an accounting student or a CPA candidate to take a look at my website, farhatlectures.com, I don't replace your accounting course nor your CPA review course. Keep those courses, they're the best for you. I am a useful addition to your material. I can explain the material differently, give you additional resources. And this is a list of all my accounting courses. So I have intermediate accounting, advanced accounting, taxation, governmental accounting, lectures, multiple choice through false questions. My CPA material is aligned with your Becker, Roger, Gleam, and Wiley. So it's very easy to go back and forth between my material and your CPA review course. I also give you access to 1,500 plus accounting, AI CPA previously released questions. So if you are preparing for the exam, you'll have those questions with detailed solution. Don't shortchange yourself. Give it a month, give me a try. If you like it, you keep it. If not, you cancel it. Good luck, study hard, the CPA exam is worth it, and stay safe.