Therefore, to understand the bifurcation of office supplies and the respective categorization, it is important to understand the type of office supplies and their usage. Contingent on the categorization, they are treated in accordance as per accounting treatments. Office supplies are considered to be short-term assets on the balance sheet and will usually be classified as such. Remember that these transactions will impact both your balance sheet and your income statement, so it’s important to record them properly.

• So, in the case of supplies, if the value of the supplies is significant enough to total at least five percent of your total assets, you should report it as a current asset on your balance sheet.
• Given that they are not that significant of investment in terms of finances, they are treated as non-capital expenses or operating expenses.
• Most of these expenses are intangible such as software subscriptions, website designing, and office maintenance costs.
• The cost of supplies is typically expensed as they are used up or consumed by the company.
• At the end of the year, the following journal entries are created, in case there are office supplies present on hand.

Inventory items are listed as assets on the balance sheet of a company. Office supplies can be classified into supplies, expense, or equipment as discussed stationery asset or expense above. This is because their cost is so low that it is not worth expending the effort to track them as an asset for a prolonged period of time.

What Are Office Supplies?

As with all assets, supplies are recorded at their cost, which is the amount paid to acquire them. The cost of supplies is typically expensed as they are used up or consumed by the company. The cost of the supplies also plays a key role in its recording process because it can impact the company’s financial statements such as the income statement, balance sheet, and statement of cash flows. When the cost is significant, it gets recorded as assets first before it is expensed but in a situation where the cost is insignificant, it gets directly expensed.

However, cleaning, office, and shipping supplies are the three most common supplies that companies use. 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. Office supplies are items used to carry out tasks in a company’s departments outside of manufacturing or shipping.

Is stationery is an asset?

Assets are one of the components of the accounting equation along with liabilities and equity. They are recorded on the statement of financial position of businesses and are usually grouped into current and noncurrent assets based on the ease of their liquidity. Assets that can be liquified within a fiscal year are current assets whereas those that require over one fiscal year to be liquified are noncurrent assets. In order to have correct financial statements, businesses need to keep track of various items and transactions that are used by or carried out in the business. These records are usually made using journal entries in different ledgers such as the general ledger. When keeping track of transactions and items, it is important that the record made captures it in the right category as either income or expenditure or more accurately, as asset, liability, or equity.

When stocks of a stationery item are given, adjustments are made related to purchasing stationery and the cost of stationery consumed. The adjusted amount of stationery consumed is charged to Income and Expenditure A/c and the Closing Stock is shown in the Balance Sheet. Your business has to pay sales tax on supplies, but you don’t have to pay sales tax on inventory. That’s because goods are typically only taxed once, at the retail level. So, in the case of inventory, the items will be taxed when you sell them to your customers.

What Effect Does Purchasing Office Supplies With Cash Have on the Accounting Equation?

If you initially record office supplies as an asset, they become an expense when you use them. In that case, you would make an adjusting entry in your accounting records at the end of the accounting period. Debits increase the balance of an expense account, while credits decrease the balance of an asset account. For example, if you pay cash for office supplies and credit the Cash account, the Cash account balance decreases.

Let’s consider the same example of recording the Journal entry for Stationery Purchased now. If the Purchase of Stationery is for the administration department or Payroll department, it requires a specific mention in the Narration. Then, it is more appropriate to record the entry with credit to ABC Stationery Vendor GL. The Journal entry posted in the books of accounts shall be Specific for the GL accounts. If we consider the Stationery Purchase as an example, then the GLs to be involved for entry shall be Stationery GL and Bank or Payable GL. If that profits are more than the traditional investments, they will be more inclined to add capital to the business.

This means that the value of supplies on the balance sheet will decrease over time as they are used until they are eventually replenished or replaced. Supplies are items that a company uses in its operations but are not intended for resale. Examples of supplies include office stationery, cleaning supplies, and packaging materials. These items have value to the company because they are necessary for the business to function and generate revenue.

There you have it – a rundown on the difference between office supplies, office expenses, and office equipment! Let me know if you have any additional questions, I’d be happy to answer them for you. Supplies refer to the materials, equipment, or resources that are needed to carry out a particular activity or task.