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Hi, I've just finished my first year, Accountant sent back list of adjusting entries. He wants me to move my prepaid items out of fertilizer expense to prepaid asset account. When I do this, it also pulls that amount out of the expenses for that year. How do I properly make this adjustment and retain it as an expense on my cash basis but show up as a prepaid on my balance sheet?
Hi Justin. You won't be able to do both. It is either a prepaid asset, which will be expensed in the new year or it will be an expense in the old year. If the accountant is trying to accrue the expense into the new year then I would indicate that the fertilizer is held in inventory and then in the new year just adjust out that inventory. That would adjust the expenses for accrual reporting, while leaving the cash expense in the old year. I think you'll probably want to have a quick chat with the accountant on this one - it may be that you will not need to enter that adjustment at all if he understands that you intended to expense that fertilizer in the year being closed.