Classification of items

by Julie M Daigle
(Rochester NH, USA)

I am helping my cousin set up a small business, Her business is an equestrian facility where she gives riding lessons & boards horses. I know the boarders would be classified as rental or lease income, but I'm not sure how to classify her own horses, as assets or equipment. I think all of the tack, fencing, supplies etc would be classified as inventory though its not sold it does get used up and needs to be replaced. The fact that it gets used up makes me think it's more of an asset that needs to be depreciated. I have Quickbooks Pro on my pc to use to set up the books but I want to be sure about classifications of things like this before I set up the books. I have my bachelors degree in accounting but no on the job experience and she knows this but I just want to be sure I'm doing this right and gain my confidence as this is someone else's money I'm dealing with and all we dealt with in school was normal businesses such as manufacturing, sales/retail and service industries. This seems to be a sort of service industry since she provides riding lessons and boarding. Those are my biggest issues in setting up the books for her. All of your other articles are awesome and helped refresh my memory on the main points I learned in college but these questions are just a little off the norm from what I can figure. Any help you could give would be greatly appreciated! I'll also possibly have questions on setting up her boyfriends business accounting as well. He does business consulting and I haven't begun to get into the details of that one yet! Sincerely Julie M Daigle


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Hi Julie!

I'm glad you found some good info on my site. Always glad to hear from another accountant.

I'm a horse owner myself, so I know the amount of work your friend is getting into with her new business. Horses are awesome!

Anyway, if your friend is placing her stable and pasture areas into the business, they will become business assets - as in Land and Buildings. But for tax purposes, once you declare an asset as a Business Asset, it stays that way. For instance, if in 2 years she decides to close down, she'll need to transfer them back to personal assets, which may have tax consequences. Advise her to talk with a tax attorney or CPA on that.

I'm not a tax advisor, just an accountant.

If you're going to designate business assets, then her Land, Building, and Equipment (waterers, tack, tools, etc) should be set up as Assets on the books - at fair market value if they are already used, not new. The other half of that entry would be to Owners Equity. She's donating her personal assets to the business.

You don't have inventory - that is for parts being made into product or product that is held for sale.

Her buckets, hoses, feed supplies, bedding, etc would be designated as supplies or feed. These would be considered "Cost of Sales" items, but call them "Supplies Expense" and "Feed Expense" and "Bedding Expense".

If after a few years she needs to replace fencing (horses love to chew!) or gates designate that as an asset and call it "Facility Improvements". If she needs a manure spreader or tractor, call that "Equipment".

For her income, be specific when you designate an account - set up a sales account for "Horse board fees" and "Horse lesson fees". That way she can have better information about her income.

I think that covers everything you asked about, if not, just email me again.

Thanks and good luck!
Kathy

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