Which of the following describes the accounting treatment for start-up costs?

Start-up costs are defined as expenses that are incurred before a new business begins its operations. According to accounting principles, these costs are typically recognized as expenses in the period incurred rather than being capitalized or deferred. This is due to the uncertainty of future economic benefits associated with start-up activities; since there is no guarantee that these costs will ever lead to revenue generation, they are immediately recognized as expenses.

By expensing these costs when they are incurred, companies adhere to the matching principle of accounting, which states that expenses should be recognized in the same period as the revenues they help to generate. This treatment reflects a more accurate financial position of the company in its initial phase and ensures that users of the financial statements are not misled about the financial standing of the company by inflated asset values.

For your understanding, while some costs might seem like they could foreseeably provide future benefits, the accounting standards emphasize a conservative approach in the absence of clear evidence of future economic benefits, leading to the requirement of expensing start-up costs rather than deferring them or treating them as liabilities.