Is “supplies expense debit or credit?” a question that’s driving you up the wall? Don’t worry, you’re not alone! In the wacky world of accounting, even the humble paperclip can cause a headache. But fear not—we’re here to break it down for you, without the jargon and with a sprinkle of humor.
Supplies are like the snacks of the office world—you buy them expecting they’ll be gone before you know it. Whether it’s pens that mysteriously disappear or sticky notes that cover your monitor, these items are meant to be consumed in the near future.
When accounting for supplies, the normal approach is to charge them to expense. That is, when you buy supplies for your business, you record the cost in your supplies account. As these supplies are used (or vanish into the black hole of office supplies), they become an expense that must be reported on the income statement as supplies expense.
To keep things accurate (and to avoid any “Where did all the money go?” moments), you need to make an adjusting entry in your general ledger to reflect the value of the supplies used during the period. Think of it as keeping tabs on your stash of coffee beans—you need to know how much you have left before the Monday morning panic ensues.
By the end of the accounting period, the balance in your supplies account should match the value of the supplies you have left on hand. Meanwhile, the amount posted to the supplies expense account will equal the cost of the supplies used. It’s all about balancing the books—literally!
Generally, supplies are reported as a current asset on the balance sheet until they’re used. Once they’re used—poof!—they transform into an expense on the income statement. Hence, supplies expense is an expense account and will have a debit balance (more on the Accounting debit and credit rules).
In this article, we’ll dive into supplies expense, debits and credits, and how to make those all-important adjusting entries without breaking a sweat.
Related: Types of liabilities
What Is Supplies Expense in Accounting?
Let’s talk supplies expense. Sounds fancy, right? But it’s really just the cost of all those consumable items your business uses up during a reporting period. Think of it as the tab for your office’s caffeine addiction (coffee pods aren’t cheap!) and the endless stream of paper and pens that seem to vanish into thin air.
Supply purchases include any item your business regularly uses—like pens, paper, printer ink, light bulbs, and yes, even toilet tissue. These are the unsung heroes of your daily operations.
Now, when you purchase supplies in bulk (hello, warehouse store deals!), it affects both your balance sheet and income statement. Why? Because the cost of supplies used during an accounting period becomes an expense at the end of that period. Hence, you need to make adjusting entries in accounting at the end of each period to ensure your supply accounts accurately reflect what’s on hand and what’s been used up.
Depending on your type of business, supplies expenses can be one of your larger corporate expenses. And here’s where we get into the nitty-gritty: There are two types of supplies in accounting that may be charged to expense—office supplies and factory supplies.
Office supplies are items like paper, toner cartridges, and those fancy ergonomic pens your team swears by. These supplies are usually of low cost, so they’re often charged to expense as incurred. In other words, if the office supplies have a very low or insignificant cost, they’re charged to the supplies expense account when purchased, rather than waiting until they’re used.
But hold on—some organizations, especially those sticklers under the accrual basis of accounting, record unused office supplies in an asset account like “Supplies on Hand,” and then charge the items to expense as they’re used. Is it worth the extra effort? Typically not, unless you’re tracking gold-plated paperclips. The administrative effort needed doesn’t usually justify the increased level of accounting accuracy.
Now, let’s talk about factory supplies. These include maintenance materials, janitorial supplies, and other items considered incidental to the production process—think lubricants, cleaning supplies, and spare parts. These supplies are usually charged to expense as incurred and included within the cost of goods sold category on the income statement.
Some organizations record unused factory supplies in an asset account and then expense them as used. This is only cost-effective if you have a large stockpile of factory supplies sitting in storage because someone has to manually count the quantities on hand (fun times!). Also, factory supplies may be included in an overhead cost pool and allocated to units produced.
Recording Supplies Expense in Accounting
So, how do we record supplies expense without pulling our hair out? Well, it’s similar to how we handle prepaid expenses. Just like with prepaid expenses, supplies are initially recorded as an asset (because we haven’t used them yet), and then when they’re consumed, they’re recorded as an expense.
When you purchase supplies for your business, you record the cost in your supplies account. As these supplies are used or consumed—whether it’s paper being printed on or coffee being gulped down—they become an expense that must be reported on the income statement as supplies expense.
Hence, an adjusting entry must be made to the general ledger to reflect the value of the supplies used in the current period. Think of it as updating your snack inventory—after a particularly hungry team meeting, you need to note that the donuts are gone!
By the end of the process, the balance in your supplies account should equal the value of the supplies you have left on hand. Meanwhile, the amount posted to the supplies expense account will equal the cost of the supplies used. It’s all about keeping things accurate and avoiding any unpleasant surprises when you realize you’re out of sticky notes.
The supplies on hand are therefore balance sheet assets that become income statement expenses as employees take and remove the supplies from the storage locker for use. So, at the end of each reporting period, the adjusting entries transfer the supplies used from “Supplies on Hand” to the “Supplies Expense” account.
It’s important to understand that this accounting process is only applicable to bulk supply purchases. If you buy and use a supply such as printer ink immediately, the generally accepted accounting principle of materiality considers the purchase insignificant. This principle allows you to record the purchase of this office supply as an expense immediately—no need to complicate things!
Now, we know that the cost of supplies is recorded as an asset first and then later recorded to the supplies expense account. But when making this adjusting entry, is supplies expense debit or credit? Supplies expense, in accordance with the rules for debits and credits in accounting, will be entered as a debit, not a credit. To understand why, let’s delve into debits and credits.
See also: Unearned Revenue Adjusting Entry
Debit and Credit Explained
Alright, time to tackle the dynamic duo of accounting: debits and credits. Sounds thrilling, doesn’t it? (Cue the accounting jokes!) But seriously, understanding these two is key to keeping your books balanced and your stress levels low.
Every business transaction with monetary value has to be accounted for in your accounting books. And to record these transactions, we use the system of debits and credits. Think of it as a game of seesaw—whenever something goes up on one side, something else goes down on the other.
In double-entry bookkeeping—the method to the madness—each transaction affects at least two accounts. The debit column sits on the left side of the ledger, while the credit column chills on the right.
Here’s the lowdown:
- Debit: An accounting entry that either increases an asset or expense account, or decreases a liability or equity account.
- Credit: An accounting entry that increases a liability or equity account, or decreases an asset or expense account.
This means that a debit entry will increase the balance of an expense account (like supplies expense), while a credit entry will decrease it. Mind-blowing, right?
For example, when you purchase office supplies and pay cash, you credit the Cash account (an asset account), causing its balance to decrease (bye-bye, cash!). You also debit the Office Supplies account (also an asset account), increasing its balance (hello, shiny new supplies!).
Later on, when making an adjusting entry to record the office supplies used, you debit the Office Supplies Expense account and credit the Office Supplies account. See the pattern? The Office Supplies Expense account (an expense) is debited to increase it, and the Office Supplies account (an asset) is credited to reduce it.
Here’s the golden rule: For every transaction, the total amount of debits must equal the total amount of credits. It’s like the universe demanding balance. If they don’t match up, your transaction is unbalanced, and your financial statements might as well be fantasy novels.
Now that we’ve cracked open the rules for debits and credits in accounting, it’s clear why supplies expense is a debit and not a credit. But let’s dive deeper with some juicy journal entry examples.
Related: Is Depreciation Expense Debit or Credit?
Is Supplies Expense Debit or Credit?
Here’s the million-dollar question (well, maybe not that much): Is supplies expense a debit or a credit?
Drumroll, please… 🎉 Supplies expense is a debit, not a credit. Surprise!
The cost of supplies is initially recorded as an asset by debiting the Office or Store Supplies account and crediting the Cash account. Then, at the end of the accounting period, the cost of supplies used during the period becomes an expense, and an adjusting entry is made to record the expense. If you skip this adjusting entry, your income statement will show higher income (whoops!) and your balance sheet will show supplies that don’t exist (double whoops!).
Under the accrual basis of accounting, the Supplies Expense account reports the amount of supplies that were used during the time interval indicated in the heading of the income statement. Meanwhile, the Supplies or Supplies on Hand account (a current asset on the balance sheet) reports the supplies that are on hand (unused) as of the balance sheet date.
As we’ve mentioned, when recording the cost of supplies in the supplies expense account, it’s recorded as a debit, and a credit entry is made to the Cash account (if paid with cash) or to the Accounts Payable account (if purchased on account), using the journal entry below:
Journal Entry for Supplies Expense (when the cost of supplies purchased is insignificant)
| Account | Debit | Credit |
|---|---|---|
| Supplies Expense | $$ | |
| Accounts Payable/Cash | $$ |
If the cost of the supplies that the business has purchased and not yet consumed is significant, then this cost of supplies should be recorded instead as an asset. By using this approach, the supplies will appear on your balance sheet as a current asset, and the journal entry would be:
Journal Entry for Supplies on Hand (when the cost of supplies purchased is significant)
| Account | Debit | Credit |
|---|---|---|
| Supplies on Hand | $$ | |
| Accounts Payable/Cash | $$ |
These supplies appear on the balance sheet as supplies on hand until they have been used and charged to expense. Consuming supplies converts the Supplies on Hand asset into an expense, which is recorded using this entry:
Adjusting Journal Entry to Record Supplies Expense (when supplies have been used)
| Account | Debit | Credit |
|---|---|---|
| Supplies Expense | $$ | |
| Supplies on Hand | $$ |
In conclusion, while it may seem ideal to record supplies as an asset, it’s generally much easier to record them as an expense as soon as they’re purchased. This avoids tracking the amount and cost of supplies on hand—a task about as fun as watching paint dry. However, this approach is only applicable to the insignificant costs of supplies, not bulk purchases. Charging supplies to expense allows you to avoid the fees charged by external auditors who might want to audit the Supplies on Hand asset accounts.
See also: Drawings Debit or Credit?
Is Supplies Expense a Debit or Credit? (Examples)
Time for some real-life action! Let’s dive into examples that illustrate why supplies expense is a debit and not a credit.
When you purchase supplies, you enter the full cost in your accounting records. Over time, these supplies are used up (or mysteriously disappear—looking at you, missing stapler). For businesses using the accrual method of accounting, it’s crucial to make an adjusting entry that reflects the actual amount of supplies on hand.
The cost of supplies is initially recorded as an asset by debiting the Office or Store Supplies account and crediting the Cash account. Then, at the end of the accounting period, you record the supplies expense as a debit to show the cost of supplies used during that period.
This helps prevent your balance sheet supplies account from being overstated—because nobody wants to think they have more than they actually do—and keeps your knowledge about your current assets accurate. Adjusting entries can be made when there’s a need to update the supplies account balance or before your monthly or annual financial statements are prepared.
Journal Entries for Supplies Expense (Supplies Used in Manufacturing)
Tracking the costs of every item—nails, screws, washers—used on the production line could be as tedious as counting grains of sand on a beach. So, to keep things sane, you account for boxes of supplies as they are requisitioned from the warehouse.
For instance, suppose four boxes of nails costing $100 each are required for a production run. The accounting entry to record this would be to debit the Manufacturing Overhead (or Factory Overhead) account for the total amount of $400, and credit the Supplies Account—Nails—for $400. Here’s how it looks:
| Account | Debit | Credit |
|---|---|---|
| Manufacturing Overhead | $400 | |
| Supplies Account: Nails | $400 |
If there are unopened boxes of supplies remaining after all units are produced, these boxes can be returned to the warehouse for future use (yay for being frugal!). The opened or partially full boxes are usually kept on the production line for use in another manufacturing run.
An adjusting entry is made to return the unused boxes back to the supplies inventory. Some companies record unused factory supplies in an asset account (Supplies on Hand) and then charge the items to expense as they are used. However, this is only cost-effective if you have a large number of factory supplies in storage because someone must manually count the quantities on hand (and who has time for that?). So, some businesses simply include factory supplies in an overhead cost pool and allocate them to units produced.
For example, if two unopened boxes of nails costing $100 each are returned to the warehouse, the adjusting entry is to debit the Supplies Account—Nails—for $200 and credit Manufacturing Overhead with $200. Like this:
| Account | Debit | Credit |
|---|---|---|
| Supplies Account: Nails | $200 | |
| Manufacturing Overhead | $200 |
Journal Entries for Supplies Expense on Discarded and Obsolete Supplies
Sometimes, supplies just don’t make it to the end of their expected life. Maybe they become damaged, obsolete, or outdated (like that box of floppy disks hiding in the corner). When this happens, an adjusting entry is required to write off these supplies.
For example, your company buys a new computer system for $500. Instantly, the value of the old computer becomes obsolete. The adjusting entry to write off the obsolete computer would be:
| Account | Debit | Credit |
|---|---|---|
| Supplies Expense: Computer | $500 | |
| Prepaid Supplies Expense | $500 |
Journal Entries for Supplies Expense on Monthly Supplies Adjusting Entry
At the end of each month, you can take a physical inventory of your supplies to update the account balance. The adjusting entry will be the difference between the beginning balance in the supplies account and the actual supplies remaining.
Example: Company ABC made the following office supplies purchases in October 2022:
- Pens
- Paper
- Staples
- File folders
The total of these office supplies purchases amounts to $5,000 and would be recorded like this:
| Date | Account | Debit | Credit |
|---|---|---|---|
| 1/10/2022 | Office Supplies | $5,000 | |
| Cash | $5,000 |
At the end of the month, if Company ABC has $4,000 worth of supplies on hand, it means the company has used $1,000 worth of supplies during the month. The adjusting entry would be:
| Date | Account | Debit | Credit |
|---|---|---|---|
| 31/10/2022 | Supplies Expense | $1,000 | |
| Office Supplies | $1,000 |
Takeaways
- Supplies expense is always a debit because it increases an expense account.
- Initially, supplies are recorded as an asset. As they’re used, an adjusting entry moves the cost to the supplies expense account.
- Adjusting entries are crucial to accurately reflect the value of supplies used and remaining on hand.
- Understanding the rules for debits and credits in accounting helps in recording transactions correctly.
- Whether to record supplies as an asset or expense immediately depends on the significance of their cost.
- Regularly updating your supplies accounts prevents overstated assets and inaccurate financial statements.