I buy cattle, raise them for 120 days then sell them. Do I expense the cattle when I buy them or when I sell.?

Question

I buy cattle, raise them for 120 days then sell them. Do I expense the cattle when I buy them or when I sell.?

Answer 1

It depends on the accounting method you're using.

With accrual accounting you expense them when you recogize the revenue associated with the sale. So, after you sell them.

With cash accounting you would take the expense when you bought them.

For most businesses, the accrual method is more appropriate. It gives the person viewing your financials a more realistic view of your financial activities.  

Answer 2

You "expense" then when you buy the,.  You "realize the gain or loss" when you sell them./

Answer 3

It seems that trading cattle is your main business. In this case, when you buy the cattle, you book it as your inventory. Expenses you incurred while raising them should be charged to expenses account. When you sell the cattle, you recognize the revenue & reduce the inventory balance & charge to COGS.

Cheers...

Answer 4

You expense the initial cost of the cattle when you sell them. Usually the freight associated with the transportation of the cattle to your facility is capitalizecd as well and expensed when you sell them. For cash bais tax purposes the only impact is if you have cattle on feed over the year end. In that case at the end of the year you can expense the feed consumed, medical costs,interest, etc., but not the initial cattle cost which again is expensed when you seel them in the following year. For accrual aqn GAAP accounting everything is capitalized until you sell them.

Answer 5

You're talking of accounting for livestock purchased for resale. Under the rules, you have a choice of the market valuation (valuing at selling price less cost to sell), which is acceptable but not preferred to valuation using the lower of cost or market. If I were you, I'd use the lower of cost of market, which means you would just stick to cost. This way no adjustment is needed within the 120 days. When you sell the cattle, you transfer the cost from inventory to COGS.