Course Outline
Join PRO

What type of expense is the purchase of propane?

Author:
Harold Averkamp, CPA, MBA

Technically, the purchase of propane is not an expense. Depending on the business, the propane is an asset until it is used, resold, or included in a product that is sold. At that time it will become an expense.

If the purchased propane is used relatively soon, accountants will usually skip recording the asset. Here are three examples of how the expense might be reported on the company’s income statement.

Example 1. A service company purchases $900 of propane to heat its office for the following month. Technically the propane is an asset until used. However, the accountant is likely to skip recording of the asset and will record the purchase as a $900 operating expense.

Example 2. A local dealer purchases large quantities of propane and then delivers the propane in small quantities to its customers. The dealer will record the purchase as the asset Propane Inventory. As the propane is sold, the dealer will reduce Propane Inventory for the cost of the propane sold and will increase the expense Cost of Goods Sold.

Example 3. A manufacturer uses propane in its factory operations. The cost of the propane purchased is likely to be recorded as Manufacturing Overhead. Manufacturing Overhead is allocated to the products manufactured and will be part of the products’ cost. If the products are in Inventory, those products’ costs are assets. If the products are sold, those products’ costs will be expensed as Cost of Goods Sold.

Join PRO to Track Progress

Features

Free

PRO

Lifetime Access (One-Time Fee)
Explanations
Quizzes
Q&A
Dictionary
Bookkeeping Video Training
Financial Statements Video Training
Visual Tutorials
Quick Tests
Quick Tests with Coaching
Cheat Sheets
Flashcards
Crossword Puzzles
Word Scrambles with Coaching
Bookkeeping Study Guide
Managerial and Cost Accounting Study Guide
Certificates of Achievement
Bookkeeping Certificate of Excellence
Business Forms
Printable PDF Files
Progress Tracking
Motivational Badges and Points
Motivational Medal Rankings
Motivational Activity Streaks
Public Profile Page of Achievements

About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

Read 3,033 Testimonials

PRO for Teams
  • Easily onboard new users and team admins
  • Monitor individual user progress and grades
  • Monitor team progress and compare users
  • View average grades and find problem areas
  • Monitor recent activity and user achievements
PRO for Teams
Take the Tour Join Pro Upgrade to Pro