I have recently starting using accounting software, which means I now have to categorise all of my expenses in a way that I wasn't doing before!
In my business I run a lot of pottery hen parties, and a local bar gives us a room for free, in exchange for buying a glass of prosecco for each of the hens who come to do pottery.
The accounting software automatically classed this as business entertaining and disallowed it.
I don't feel that this is fair, as it's a complete business expense - they pay £45 per head to come and do pottery, which includes a glass of bubbly for each person.
I think it's effectively room-hire and should therefore be rent, but don't know!
Thoughts? And if it is a business expense, how should it be categorised?
As it is your business and an ongoing entity, my opinion would be to seek professional advice. i asked a similar question via bing
If you receive a room for free, it would be classified in accounts based on the context and purpose. Here are a few scenarios:
Business or Organizational Use:
If the room is provided for business or organizational purposes (e.g., office space, meeting room, or accommodation for employees), it would be accounted for differently:
Operating Expenses: If the room is used for day-to-day operations, it would be considered an operating expense. The cost associated with maintaining and using the room (utilities, maintenance, etc.) would be recorded as an expense on the income statement.
Capital Asset: If the room is a significant asset (e.g., a large office space), it may be considered a capital asset. In this case, the cost of acquiring or constructing the room would be capitalized and depreciated over its useful life. The depreciation expense would be recorded on the income statement.
Gift or Donation:
If the room is received as a gift or donation (e.g., from a benefactor or another organization), it would be accounted for as follows:
Non-Monetary Transaction: The fair market value of the room would be recorded as a non-monetary transaction. This value would be recognized as income or contribution, depending on the organizations accounting policies.
Leasing or Renting Out:
If you receive the room for free but plan to lease or rent it out to others, it becomes an income-generating asset. In this case:
Rental Income: The rental income generated from leasing the room would be recorded as revenue on the income statement.
Remember that specific accounting treatment may vary based on local regulations, organizational policies, and the purpose of the room. Its essential to consult with an accountant or financial professional to determine the appropriate classification and accounting treatment for the free room
