Definition of Supplies
Office supplies are items used to carry out tasks in a company’s departments outside of manufacturing or shipping. Office supplies are likely to include paper, printer cartridges, pens, etc.
Shipping supplies are the cartons, tape, shrink wrap, etc. for preparing products that are being shipped to customers.
Manufacturing supplies are items used in the manufacturing facilities, but are not a direct material for the products manufactured. These will include a wide variety of items from cleaning supplies to machine lubricants.
Accounting for Office Supplies
The cost of office supplies on hand at the end of an accounting period should be the balance in a current asset account such as Supplies or Supplies on Hand. The cost of the office supplies used up during the accounting period should be recorded in the income statement account Supplies Expense. When supplies are purchased, the amount will be debited to Supplies. At the end of the accounting period, the balance in the account Supplies will be adjusted to be the amount on hand, and the amount of the adjustment will be recorded in Supplies Expense. (If the amount of supplies on hand is insignificant, a company may simply debit Supplies Expense when the supplies are purchased.)
Accounting for Shipping Supplies
The cost of shipping supplies on hand will be reported as a current asset on the balance sheet and the shipping supplies used during the accounting period will be reported on the income statement as Shipping Supplies Expense.
Accounting for Manufacturing Supplies
The cost of manufacturing supplies on hand at the end of an accounting period will be reported in a balance sheet current asset account such as Inventory of Manufacturing Supplies. (There are likely to be several accounts or sub-accounts in order keep track of the manufacturing supplies by category.) When the manufacturing supplies are used they will become part of the manufacturing overhead, which is then allocated to the products manufactured.
FAQs
When supplies are purchased, the amount will be debited to Supplies. At the end of the accounting period, the balance in the account Supplies will be adjusted to be the amount on hand, and the amount of the adjustment will be recorded in Supplies Expense.
What are the accounting terms for supplies? ›
In general, supplies are considered a current asset until the point at which they're used. Once supplies are used, they are converted to an expense. Supplies can be considered a current asset if their dollar value is significant.
What is supplies expense considered in accounting? ›
What is Supplies Expense? Supplies expense refers to the cost of consumables used during a reporting period. Depending on the type of business, this can be one of the larger corporate expenses. There are two types of supplies that may be charged to expense, which are noted below.
What is the normal balance for supplies Inventory? ›
Answer and Explanation: The normal balance of the Merchandise Inventory account is a debit balance. Inventory represents the unsold stock that remains in the books and in the warehouse at the end of each accounting period.
What is the formula for supplies expense? ›
Answer and Explanation: The adjusting entry required here will be created based on the following formula: Beginning Supplies - Ending Supplies = Supplies Expense.
What is a supply expense example? ›
Office supplies expenses include items such as staples, paper, ink, pen and pencils, paper clips, binders, file folders, and markers. All of these items are 100% consumable, meaning that they're purchased to be used.
How do you record supplies on a balance sheet? ›
You can record how much money the company's employees spend on supplies in your supply account by debiting supplies and crediting cash. For example, an office may spend $1,500 on supplies during a fiscal year. Its accounting team can add $1,500 to the assets column of the company's balance sheet.
What is the financial statement for supplies? ›
Generally, supplies are recorded as current assets on a company's balance sheet until they are used. At that point, they would be transferred to the expense account on the income statement.
What is included in supplies? ›
These include items such as printer ink, paper clips, paper, pens, staples, record keeping supplies, janitorial supplies, break room supplies, etc.
What are examples of supplies? ›
Supplies are items that are used to run the daily operations of a business. They are not necessarily a component of the finished product, but they play an essential role in the business function. Examples of supplies include paper, labels, boxes, pens, computers, and software.
Operating expenses include items such as stationery, printer ink, and paper. Overhead expenses: Overhead expenses are those that are not directly related to the production of goods or services, but are still necessary for the business to function. Office supplies would typically fall into this category.
What is the difference between Inventory and supplies in accounting? ›
Inventory is items subject to sale, rent or leases. Supplies are things consumed in your normal course of business. Inventory will lose its exemption if used by the owner in the course of the business or trade.
How do you calculate supplies balance? ›
Supplies used during the year can be figured from the differences in the beginning and ending balance in the supplies account. The supplies used during the year can be calculated as follows: Supplies used = Beginning supplies + Purchases - Ending supplies. Supplies used = $1,000 + $7,000 - $4,000.
What is an example of inventory in accounting? ›
Inventory refers to all the items, goods, merchandise, and materials held by a business for selling in the market to earn a profit. Example: If a newspaper vendor uses a vehicle to deliver newspapers to the customers, only the newspaper will be considered inventory. The vehicle will be treated as an asset.
What is the formula for inventory? ›
The basic formula for calculating ending inventory is: Beginning inventory + net purchases – COGS = ending inventory. Your beginning inventory is the last period's ending inventory. The net purchases are the items you've bought and added to your inventory count.
Are supplies expensed or capitalized? ›
Expenses that must be taken in the current period (they cannot be capitalized) include Items like utilities, insurance, office supplies, and any item under a certain capitalization threshold. These are considered expenses because they are directly related to a particular accounting period.
How to do adjusting entries for supplies? ›
Monthly Supplies Adjusting Entry
For example, if the beginning balance is $5,000 and you have $4,000 of supplies on hand, you used $1,000 of supplies during the month. The adjusting entry is to debit "supplies expense" for $1,000 and credit "supplies" for $1,000.
Where does supplies go on balance sheet? ›
Office supplies may or may not be considered a current asset depending on their cost. Generally, supplies are recorded as current assets on a company's balance sheet until they are used. At that point, they would be transferred to the expense account on the income statement.
What is the journal entry for supplies purchase? ›
When you make a purchase of supplies on account, you must prepare a journal entry that contains one debit and one credit. The debit is made to the supplies expense account, which is a temporary account used to record costs that will be displayed on the income statement.
