Accounting question help..

[minimum]

HEY GUYSSS..just a small question:

A business deals with plants, and the plants are being ruined by pests.
The business buys $100 worth of pesticide on 1 jan 2011.
But it's not until 1 march the business actually sprays the pesticide.

What accounts will be affected on 1 Jan 2011?
I know Bank will go down by $100
will the other account be "Prepaid pesticide expense" which is affected?


thankssss.

[Camo]

So the 100 dollars worth of pesticide is an expense in terms of cash and an increase in pesticide. Seeing that we use a two fold effect then the asset is recorded and we have 100 of pesticide on 1/1/2011.

I think this is right but can someone check for me?

[minimum]

yeah...i agree with you with all that.
I  just want to confirm that the other account affected will be called "Prepaid Pesticide expense"?
I think it should be a prepaid account....
But it just confused me a bit.

[nacho]

So the 100 dollars worth of pesticide is an expense in terms of cash and an increase in pesticide. Seeing that we use a two fold effect then the asset is recorded and we have 100 of pesticide on 1/1/2011.

I think this is right but can someone check for me?

yea.

ASSETS: (BANK decrease $100, Pesticide increase $100) No effect         0
LIABILITIES: No effect                                                                    0  
OWNERS EQUITY: No effect                                                             0

[illuminati]

Okay, at Jan 1st, 2011 at the point of transaction you are going to have a decrease in your bank of $100 and an increase of the ASSET account "Prepaid Pesticide expense" by $100.
At the point where its used up as an expense however, at March 1st, you'll have it down as an increase in the expense "Pesticide expense" and then the remaining asset in Prepaid Pesticide expense of $100 will be credited.

EDIT: Okay, Prepaid Expense is in the midyear nvm

[minimum]

Okay, at Jan 1st, 2011 at the point of transaction you are going to have a decrease in your bank of $100 and an increase of the ASSET account "Prepaid Pesticide expense" by $100.
At the point where its used up as an expense however, at March 1st, you'll have it down as an increase in the expense "Pesticide expense" and then the remaining asset in Prepaid Pesticide expense of $100 will be credited.

However, I do vaguely remember Prepaid revenues and expenses being in the end of year exam rather than the mid year so probably don't have to worry too much

YESSS! thankyouuu soo much
and umm. haha and this is for a uni assignment.
Just had to simplify the question.

but thankyouu so much!
I appreciate it

[luffy]

I understand that when the entity uses the pesticide, it will be a "pesticide expense."

However, why is it a prepaid account? Shouldn't the asset simply be "pesticide"?

If not, then would that mean, whenever we are purchasing items such as stationery, the asset is in fact "prepaid stationery"?

Sorry, I'm a little confused. Could someone please explain this to me?

[illuminati]

It is called prepaid since essentially it has been paid in advance. So yes, items like stationery would be classified as an asset under the name "Prepaid Stationery Expense". I think the prepaid is just there to differentiate between the expense and asset accounts

[minimum]

another questionnn...Sorry guys i asked in one of the other threads but no reply.

A business usually earns $50 a day from providing it's services,
however it decides to donate a day worth of services to a charity.

First i thought it should be an expense then i realised it doesn't meet the definition.
As, there is no decrease in assets nor is there an increase in Liabilities.
If so, i think it shouldn't effect any element.

Is my thinking correct? Please help!

[marr]

HEY GUYSSS..just a small question:

A business deals with plants, and the plants are being ruined by pests.
The business buys $100 worth of pesticide on 1 jan 2011.
But it's not until 1 march the business actually sprays the pesticide.

What accounts will be affected on 1 Jan 2011?
I know Bank will go down by $100
will the other account be "Prepaid pesticide expense" which is affected?


thankssss.

Couldn't the pesticide be deemed as a product cost (cost incurred in getting the plants into a condition that makes it ready for sale) and therefore added to the value of stock?

[illuminati]

another questionnn...Sorry guys i asked in one of the other threads but no reply.

A business usually earns $50 a day from providing it's services,
however it decides to donate a day worth of services to a charity.

First i thought it should be an expense then i realised it doesn't meet the definition.
As, there is no decrease in assets nor is there an increase in Liabilities.
If so, i think it shouldn't effect any element.

Is my thinking correct? Please help!

I'm thinking that the donation would come under advertising actually.
Last year, donation of stock to a charity would be considered advertising since it showcases the goodwill and the quality of the stock.
But since this is donation of cash, it might not be classified the same way.

HEY GUYSSS..just a small question:

A business deals with plants, and the plants are being ruined by pests.
The business buys $100 worth of pesticide on 1 jan 2011.
But it's not until 1 march the business actually sprays the pesticide.

What accounts will be affected on 1 Jan 2011?
I know Bank will go down by $100
will the other account be "Prepaid pesticide expense" which is affected?


thankssss.

Couldn't the pesticide be deemed as a product cost (cost incurred in getting the plants into a condition that makes it ready for sale) and therefore added to the value of stock?

Yes it could have, but the thing is you don't know how many plants you have and whether you can logically allocate it to each unit of plant. Therefore, the pesticide expense should really be a period cost and will not affect the value of stock, rather it will be a Cost of Goods Sold that is not Cost of Sales.