How to account for supplies
/Supplies are incidental items that are expected to be consumed in the near future. The normal accounting for supplies is to charge them to expense when they are purchased, using the following journal entry.
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| Debit | Credit | |
| Supplies expense | xxx | |
| Accounts payable | xxx |
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.
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.