USA Correct Classification

[Aaronc]

Hi everyone! I have a couple of questions for a new business.
My business partner and I bought a new business together
We each put in X amount of dollars for improvements.
So that money is classified as owners contributions and is on the balance sheet.
But when we do improvements, how do we classify the improvement so it substracts it from what we put in? That why it doesn’t effect the P&L.

Part of the business is exchanging dollars for quaters/tokens. How is the best way to track this income stream?

Thanks

 

[Dave In Capital]

The contributions that were earmarked for improvements shouldn't have an impact on the P&L until the improvements are made. Once they're made, you then want to determine if they should be considered repairs & maintenance or capital improvements. Improvements that increase the asset's value, useful life, or adapts it to new uses are considered capital improvements. In which case, those improvements are subject to depreciation recapture provisions. As always, materiality considerations apply. For example, one could make the case that repairs and maintenance increase the useful life of an asset, and therefore should be capitalizable. Ultimately the reasonable judgment of the intended users of the financials applies whether those intended users are investors, lenders, or the tax authority.

Since a money changer business ie coinstar is providing a service rather than selling an asset ie dollar bills, the revenue would be whatever fees are being charged.

Then there's the matter of accounting for the dollar bills and coins. I'm not entirely certain, but I am guessing that it would be similar to a stock record which the SEC requires brokers to maintain. You would keep a ledger of the dollars that go out and the coins that are brought in, and then record the "commissions" which in this case are the fees. I am also guessing that the dollars on hand are not the property of your business, but rather are on loan from whatever intermediary is changing the coins that you bring in. In which case you would debit an asset like deposits of dollar bills from intermediary and then credit a liability like coins due intermediary. Generally those two accounts would be in continual balance. However, if you are purchasing the dollars then you would debit an asset account and credit cash similar to the JEs for trading securities available for sale.