Asset or Expense?
Kerissa
Member Posts: 6
Hello! I have a direct market farm with a few different species of animals that I keep records separate for. I'm pretty new to actual accounting and am wondering what account I should put the category of Tools and Supplies for each animal under. Generally what I put under this label are materials for structures, waterer's feeders etc.... things that really are an investment, non-consumable items. These are things that will be used for more than one year. I am thinking asset account?
I am also wondering the same thing about my land accounts. We lease land, so would the lease payment go under an asset account? And materials for the land, like fencing, irrigation etc?
We also do rentals, so would the mortgage for the rental be under the liability end of things or an asset? Really it makes my assets increase under land, but also notes payable under liabilities.
I am taking an accounting 1 course so am learning debits and credits and am not entirely sure how this translates into chart of accounts in wave.
I hope I am making sense, any help is really appreciated!
Comments
Hi, @kerissa,
Assets represent things that you own that have value. This covers tools, vehicles, land, the money in your bank account and so on. If it's something you could resell, it's probably an asset.
Rental payments wouldn't be an asset account, but an income account. It isn't a resource in and of itself, but a source from where resources can come. If you're paid rent, the cheque is deposited to your bank account (that's the Payment Account in Wave) and you'll set the category to the income account "Rent Payment" (or whatever makes the most sense). Materials might count as either expenses or assets, depending on how you prefer handling them.
Your mortgage would be a liability account (it's money you owe), but the value of the property would still need to appear in an asset account. So if you made a journal transaction to represent you gaining a property worth $100,000 with a mortgage of the same amount, it would look like...
If you want an easy way to remember what account represents what, here you are:
Finally, if you're looking for a great primer on how to use Wave, consider taking a look at Fearless Accounting. It's our own guide to using Wave, and it makes for an excellent "Accounting 101" textbook as well!
I hope this clears things up!
thanks for this info. it is a great help. I will read "fearless accounting". Is there any chance I can ask questions directly to you? like email or direct message? thanks in advance and have a great day ahead.
Hi @Alexia, thank you for that inof. the Rent payments I was referring to are the lease payments WE make, so right now I am putting them in expenses because I figured that is the best place. However, for the lease we have that 30 acres of land, which is an asset.. right?
And then my thoughts about are fencing material come from the class I am taking, all office supplies and store supplies are put under assets. I see fencing in the same place of buildings, shelters etc. because we do own it and it and could sell it if wanted/needed, So when I make a purchase (fencing or office supplies) and categorize it to an asset account, will it do the debit/credit automatically? And how will will I make the Debit/Credit journal entries for the land... is that covered in the Fearless Guide? I know how to do all of that manually, on paper, but am having a hard time understanding all of that in Wave.... Thank you!
Looking at the Fearless accounting guide, For Pre-Paid insurance I would put that in the asset when I pay for it and then at the end of the month create a journal transaction that would move it over to expense? Or should I really worry about that?
Hi, @TPAC and @Kerissa,
@TPAC, you're always best off starting a new discussion on the Community if you have any questions. The admin team doesn't usually answer questions sent in via private message since the answers to those questions could help other Wavers. Plus, another Waver could step up and help you as well and maybe do so faster than we could.
@Kerissa, I apologize for the misunderstanding. You wouldn't put land you don't own as an asset because, well, it isn't yours. It might a little different if this was a lease-to-buy arrangement like you could have for a car, but for rented property, the rent you pay would just be an expense. In short, it's only an asset if you own it, or parts of it.
Yes, it'll be automatic. If, say, you create a bill and categorize those items to an asset account called "Fencing material", Wave would take care of the rest. There is a bit of information on this in Fearless Accounting on Page 37-38.
Finally, for the insurance, I don't think I would worry about that, but how detailed you make your accounting is up to you (this is more something that would be handled on the side of your insurance broker). You could record it that way, but it wouldn't change much in the grand scheme of things. It would just alter when those expenses appeared on your Profit and Loss report. If you work in accrual-based accounting, it might not change anything at all.
Ok, thank you so much! We are in an option to buy agreement, but I am not sure that will happen for awhile.
Happy to help out, @Kerissa.
If this does happen later down the road, it shouldn't be too difficult to turn those past expenses into an asset using a journal transaction. You'll credit your expense account and debit your new asset account for the amount that you already paid through lease payments, and then record the payment for the remainder of the land's value (and the mortgage if required) as categorized to that same asset.