How to account for supplies
/What are Supplies?
Supplies are incidental items used during the course of production, or as part of an organization’s administrative activities. The total cost of supplies tends to be quite low, and the per-unit cost of supplies is also usually quite low. Examples of supplies are paper, staples, and toner cartridges.
What is the Accounting for Supplies?
The normal accounting for supplies is to charge them to expense when they are purchased, using the following journal entry.
If the cost of the supplies that you have purchased and not yet consumed is significant, then you can instead record them as an asset, using the following entry:
| Debit | Credit | |
| Supplies on hand | xxx | |
| Accounts payable | xxx |
By using this later approach, the supplies will appear on your balance sheet as a current asset, until you use them and charge them to expense with this entry:
| Debit | Credit | |
| Supplies expense | xxx | |
| Supplies on hand | xxx |
Thus, consuming supplies converts the supplies asset into an expense.
Related AccountingTools Courses
Despite the temptation to record supplies as an asset, it is generally much easier to record supplies as an expense as soon as they are purchased, in order to avoid tracking the amount and cost of supplies on hand. Also, charging supplies to expense allows for the avoidance of the fees charged by external auditors who would otherwise want to audit the supplies on hand asset account.