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I have some fall fertilizer and was wondering about the correct way to enter it. If you just put it under the prepaid fertilizer account it doesnt show up on your cash income/expense statement. Would you first record it as an expense and then use the general journal to move it to an asset?
Hi Gerald!
Technically, the correct way to deal with prepaid fertilizer is to post it to the prepaid items account. That way, as you take delivery on the fertilizer and it is in your possession, you can then do an entry to move a portion of that prepaid into an expense account. One of the fundamental rules of accounting is that you do not claim an expense until it is incurred. Prepaying an expense is not the same as incurring it.
Should you choose to use this method, we have created an article in our knowledge base to show you how the transactions work:
http://community.fccsoftwar...
That being said, a lot of people choose to post the prepayment as fertilizer expense immediately upon making the prepayment. You would just ignore any invoices that come in, since entering them would be a double-entry of the expense. That being said, I always recommend the first method, since this is the method endorsed by CRA and GAAP.
Hope this helps!