Supplies expense definition
/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.
Factory Supplies
Factory supplies include maintenance materials, janitorial supplies, and items that are considered incidental to the production process. They are usually charged to expense as incurred, in which case the supplies expense account is included within the cost of goods sold category on the income statement. Under the accrual basis of accounting, some businesses record unused factory supplies in an asset account, such as Supplies on Hand, and then charge items to expense as they are consumed; this is only cost-effective if a large amount of factory supplies are retained in storage, since someone must manually track the quantities on hand. Factory supplies may also be included in an overhead cost pool and allocated to units produced.
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Office Supplies
Office supplies include such items as paper, toner cartridges, and writing instruments. They are typically of such low cost that they are charged to expense as incurred. Under the accrual basis of accounting, some organizations record unused office supplies in an asset account, such as Supplies on Hand, and charge items to expense as they are consumed; however, the administrative effort required to do so does not usually justify the increased level of accounting accuracy, and so is not recommended.
When supplies are initially recorded in the supplies expense account, the offsetting credit is usually to the accounts payable account. If the supplies are instead paid for with cash, the offsetting credit is to the cash account.
Accounting for Supplies Expense
When a business purchases large amounts of supplies, it may initially store them in the Supplies on Hand asset account, and then charge them to expense as they are consumed. If so, the following journal entry shows the initial recordation of these supplies when they are received. In the example, we assume that $5,000 of supplies have been received:
Once some of the supplies have been used, they are charged to expense. In the following example, we assume that $1,500 of the supplies on hand have since been used.
Presentation of Supplies on Hand
The Supplies on Hand asset account is classified within current assets, since supplies are expected to be consumed within one year.
Examples of Factory Supplies
There are many examples of factory supplies, which can encompass a broad range of functional areas within a factory, including the production warehouse, and materials management areas. Here are some common examples of factory supplies:
Janitorial supplies
Machine lubricants
Rags
Solvents
Examples of Office Supplies
The administrative area of a business is full of office supplies. Here are some common examples of office supplies:
Desk supplies
Forms
Light bulbs
Paper
Pens and pencils
Toner cartridges
Writing instruments