ASC 720
Active
Other Expenses
Governs other expenses not covered by more specific Topics, including start-up costs, advertising, and restructuring costs.
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Conceptual Framework Linkage
A catch-all for miscellaneous operating expenses
ASC 720 is explicitly a residual Topic – it governs expenses that are NOT adequately addressed by other, more specific Topics in the Codification. Because it covers diverse expense types without a unifying theme, its guidance on recognition and measurement is often tied to the specific economic substance of each expense type rather than a single overarching principle.
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Scope – a Residual Expense Topic
Start-up costs, advertising, restructuring
ASC 720 covers start-up costs (720-15), advertising costs, restructuring costs, and other miscellaneous operating expenses. It does NOT cover compensation costs (ASC 710/712/715/718), cost of sales (ASC 705), or income taxes (ASC 740). Each subtopic addresses a different expense type with recognition rules tailored to that type's specific economics.
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Start-Up Costs (720-15)
Expensed as incurred
Start-up costs – costs incurred during the organisation and pre-operating phase of a new entity or operation – must be EXPENSED as incurred under ASC 720-15. This includes costs such as legal and accounting fees, promotional expenses, and training costs incurred before the entity begins normal operations. Capitalisation is NOT permitted.
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Advertising Costs
Generally expensed when the advertising takes place
Advertising costs are generally EXPENSED when the advertising takes place – when the advertising activity occurs or when the advertising message is first communicated. Costs for direct-response advertising MAY be capitalised and amortised if they meet the criteria in ASC 340-20, but ordinary brand advertising is expensed as incurred.
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Restructuring Costs
Expensed when incurred, not when announced
Restructuring costs are EXPENSED when the entity INCURS the cost, not when the restructuring is announced or planned. This means termination benefits are recognised when employees are notified and the amounts can be estimated, lease termination costs are recognised when the entity terminates the lease, and other restructuring costs are recognised as the related services are received.
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Worked Example – Start-Up Cost Expense Recognition
Pre-operating costs of a new restaurant
Example: Pre-opening restaurant costs
A restaurant entity incurs $180,000 during its pre-opening phase: $80,000 in employee training costs, $50,000 in grand-opening advertising, and $50,000 in legal/accounting fees to set up the entity.
ALL three cost types are EXPENSED as incurred under ASC 720: Training costs ($80,000) + Advertising ($50,000) + Legal/accounting ($50,000) = $180,000 recognised as start-up/organisation expense in the period incurred – none are capitalised as an asset.
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Worked Example – Advertising Cost Periods
When advertising costs hit expense
Example: Television advertising campaign
An entity pays $120,000 in November for television advertising spots that will air in January, February, and March of the following year.
Under ASC 720, the $120,000 is EXPENSED when the advertising takes place – that is, in January, February, and March when the ads actually air – NOT in November when the payment was made. The prepayment creates a deferred asset (prepaid expense) until the air dates.
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Disclosure Requirements
What ASC 720 requires
Nature and amount of significant advertising and promotional costsSignificant restructuring costs, including the nature of the restructuring and its expected completion datePeriod costs included in cost of sales, if any
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Critical Judgments & Estimates
Where judgement matters most
SIGNIFICANT JUDGEMENTS
Whether direct-response advertising meets the criteria for capitalisation under ASC 340-20When restructuring costs are incurred versus merely announced
SIGNIFICANT ESTIMATES
Amount of restructuring costs that can be reliably estimated at the announcement dateExpected completion date and timing of restructuring-related cash flows
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ASC 720 vs IFRS – Dissimilar Comparison
Comparison – ASC 720 vs IFRS
FeatureUS GAAP (ASC 720)IFRS
Start-up costsExpensed as incurredExpensed as incurred
AdvertisingExpensed when the advertising takes placeSimilar treatment – expensed when received
RestructuringExpensed when costs are incurredIAS 37 requires recognition when a constructive obligation arises
Restructuring represents the most divergence between ASC 720 and IFRS – IAS 37's constructive obligation concept often requires earlier recognition than US GAAP's incurred-cost model.
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Statement Mapping
Where every ASC 720 event lands
EventStatement(s) affectedNotes
Start-up costsISExpensed as incurred
Advertising costsISExpensed when the advertising takes place
Restructuring costsISExpensed when incurred, not when announced
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Related Topics
Cross-reference map
TopicConnection
ASC 340Other Assets and Deferred Costs – governs capitalised advertising (direct-response)
ASC 420Exit or Disposal Cost Obligations – governs one-time termination benefits
IAS 37Provisions, Contingent Liabilities and Contingent Assets – IFRS restructuring equivalent
Financial statement key
BS Balance sheet
IS Income statement
SE Statement of changes in equity
OCI Other comprehensive income
SCF Statement of cash flows